Government To Achieve Fiscal Deficit Target Of 4.4% In FY26: PwC

The government is likely to achieve the fiscal deficit target of 4.4% of the GDP in FY26, and it could even better it, a positive signal to global investors about India's commitment to fiscal management, PwC Partner and Economic Advisory Services leader Ranen Banerjee said.

The revision in the nominal GDP growth target from 10.1% to 8% by the National Statistical Office recently raised concerns about the government's ability to meet the fiscal deficit target.

Although the nominal GDP growth rate has been revised downward to 8% from 10.1%, the absolute numbers are almost matching the budget estimates, he said, adding that this means the denominator is not shrinking and the government should easily meet the 4.4% fiscal deficit target.

It is to be noted that the government overachieved its fiscal deficit target of 4.8% against 4.9% of GDP pegged for FY25.

'It has a headroom to actually better it. We believe that optically speaking, it could be pegged at 4.3% because it is a kind of signal that we are actually not only meeting the fiscal consolidation targets, but we are overachieving them,' Banerjee said.

Finance Minister Nirmala Sitharaman, in her Budget speech last year, pegged the fiscal deficit for FY26 at Rs 15.69 lakh crore, or 4.4% of GDP.

Observing that the National Statistical Office's revision of nominal GDP growth is in line with expectations, Banerjee said softer wholesale price indices, particularly food and oil prices, have contributed to a lower deflator, resulting in a smaller gap between nominal and real GDP growth.

However, he said, the lower nominal GDP growth is expected to impact tax revenues, with an estimated shortfall of Rs 1.9 trillion in gross tax revenues.

After accounting for GST compensation cess, he said, the shortfall could be around Rs 75,000 crore or Rs 0.75 trillion.

Despite this, the central government is expected to have a buffer of around Rs 0.5 trillion from unutilised GST compensation cess funds.

On the expenditure side, he said revenue expenditure is likely to be 2% lower than budget estimates, while capital expenditure is expected to be close to 100% of the budgeted amount.

As a result, the fiscal deficit target is still achievable, with the shortfall in tax revenues likely to be offset by savings on the expenditure side, he added.