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Despite the estimated revenue loss from the implementation of GST 2.0, India is likely to achieve its fiscal deficit target of 4.4 per cent of GDP in FY26, according to a report by CareEdge Ratings. The report said that although GST rationalisation is expected to result in revenue deflation, the government's path to fiscal consolidation is still achievable. CareEdge estimates the fiscal deficit for FY26 to be contained at the budgeted level of 4.4 per cent of GDP.

According to the report, rationalisation of GST is estimated to result in a net revenue shortfall of about 0.1 per cent of GDP in the current fiscal year.

However, the report highlights that higher dividend transfers from the Reserve Bank of India (RBI) are expected to compensate for this shortfall. The higher inflow from the central bank is likely to provide significant support to government finances at a time when tax collections are under pressure.

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It stated "We expect the net revenue shortfall from GST rationalization....... to be cushioned by the higher RBI dividend transfer".

The report said that increase in dividend transfer by RBI and the government's focus on expenditure management will play an important role in keeping the deficit within the budgetary limit.

The report also said that rationalisation of GST may reduce collections in the short term, but it is expected to increase tax revenues in the medium to long term.

It cautioned that low nominal GDP growth this year could pose some challenges for tax collections. If revenue pressures persist, government expenditure could come under pressure during the second half of FY26 as the authorities remain committed to the path of fiscal consolidation.

Although direct tax collections have so far lagged expectations, indirect tax collections have performed better.

The report noted that growth in GST revenues and central excise duties supported overall indirect tax flows, partially offsetting the weakness seen in direct taxes.

In conclusion, the report said that despite revenue pressure from GST rationalisation and slower-than-expected tax collection growth, the fiscal deficit target of 4.4 per cent of GDP for FY26 is achievable.

With ANI Inputs

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