India Fiscal Deficit FY26: Slower Tax Growth Threatens Goals
India Faces a Tricky Fiscal Balancing Act: Slower Tax Growth Clouds FY26 Deficit Goals
The government wants to shrink the fiscal deficit to 4.5% of GDP by FY26, but now that goal looks a lot harder. Tax revenue isn’t growing like it used to, and spending demands keep piling up. It’s a classic balancing act: stick to fiscal discipline, or keep growth going.
Tax growth has slowed.
For years, GST and direct taxes brought in big numbers, but that momentum’s fading. The economy isn’t expanding as fast, and people aren’t spending as much. That hits tax collections and makes it tough to hit this year’s and next year’s revenue targets.
On top of that,
the government has bills to pay—roads, welfare programs, interest on debt, you name it. Elections are coming up, so cutting social spending is unlikely.Â
The deficit targets—
5.1% of GDP for FY25 and 4.5% for FY26—are starting to look optimistic. If tax revenue falls short, the government faces some tough choices: cut spending, or borrow more (and risk higher borrowing costs).
So what’s the way out?
Experts are clear: India needs to widen its tax base and get more people and businesses to pay what they owe. Cleaning up GST compliance and rethinking subsidies will help. The government can also look at raising money by selling assets or stakes in state-run companies, instead of just taxing and borrowing.
