Despite tax shortfall, govt on track to meet fiscal deficit and CAPEX targets: PwC India

The Indian government is on course to meet its fiscal deficit and capital expenditure (CAPEX) targets for the current financial year (FY26), even as tax revenues fall slightly short of expectations, according to PwC India.

Ranen Banerjee, Partner and Economic Advisory Leader at PwC India, told ANI that the government’s fiscal position remains comfortable, supported by strong non-tax revenue inflows and front-loaded spending across key sectors. While nominal GDP growth may come in slightly lower than earlier estimated, the fiscal deficit target of 4.4% of GDP, or roughly ₹13.2 lakh crore, is achievable. PwC even suggests that the deficit could come in slightly lower, around 4.3%, due to higher-than-expected revenue performance.

PwC, short for PricewaterhouseCoopers, is one of the world’s largest professional services firms, providing audit, tax, consulting, and financial advisory services. Its analyses are considered highly credible, based on extensive data and experience advising governments and businesses globally.

To meet its fiscal and CAPEX targets, the government is relying on a combination of sources and measures. Non-tax revenues, including dividends and profits from public sector enterprises like ONGC, Coal India, and Indian Oil, as well as surplus transfers from the Reserve Bank of India, are expected to provide a substantial revenue cushion. Borrowing through domestic bonds and, if needed, external markets at favorable interest rates will also fund the deficit. Front-loaded public spending in sectors such as defence, railways, and roads stimulates the economy while controlling overall expenditure.

Other measures include GST and indirect tax adjustments, with the October GST rate reclassification expected to boost consumption and indirectly increase tax revenue. Subsidy rationalisation and targeted welfare spending free resources for core investment, while disinvestment, proceeds from strategic sales of stakes in public sector companies, reduces the need for borrowing.

Banerjee noted that a large portion of planned CAPEX has already been executed, lowering the risk of deviation from the Budget estimates. Key sectors continue to see high public investment, and the likelihood of overshooting the Budget is low. Private investment, however, remains cautious, with companies waiting to see if demand remains sustainable, especially amid global uncertainties. If capacity utilisation rises to 90-95%, higher consumption from GST reforms could encourage private players to invest. November GST data will provide a clearer picture of festive-season consumption trends.

Fiscal Deficit in Perspective: Last Two Years

The comparison shows a gradual reduction in the fiscal deficit over the last two years, signalling disciplined fiscal management even amid global and domestic challenges.

Global economic conditions, however, could influence the government’s ability to fully meet its fiscal and investment targets. Rising global interest rates may increase borrowing costs, while trade slowdowns could reduce exports and tax collections. Commodity price volatility, particularly in oil, could push up import bills and subsidy costs. Reduced foreign investment inflows or cautious private investment due to global uncertainty could also affect overall economic growth.

Despite these risks, PwC believes that strong non-tax revenue inflows, front-loaded CAPEX, and careful fiscal management provide a buffer, helping India stay on track even amid global headwinds.

In short, a combination of strategic funding measures, disciplined spending, and public investment is keeping India on course to meet its fiscal and CAPEX targets, while global conditions remain a factor to watch in the coming months.