New Delhi: India's fiscal trajectory will depend increasingly on the strength of direct tax collections as lower customs duties and weaker excise revenues could constrain indirect tax receipts, while government spending remains front-loaded, according to a report by Dolat Capital.
"Going ahead, the fiscal outcome will depend more heavily on direct tax collections," Dolat Capital said in its report on government finances, adding that lower customs duties on edible oils and sugar, along with weaker excise collections, could constrain indirect tax revenues.
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The report said the government's spending has remained ahead of last year's pace during the first five months of the financial year, led by higher capital expenditure (capex) and subsidies. This has pushed the primary deficit to 67 per cent of the budget estimate, compared with 23 per cent in the corresponding period last year.
The fiscal deficit stood at Rs 7.1 trillion, or 41.9 per cent of the budget estimate, up to August 2026, compared with Rs 5.9 trillion a year earlier, marking an 18.7 per cent increase. Total expenditure rose 10.1 per cent year-on-year to Rs 20.7 trillion, with capex increasing 18.6 per cent to Rs 5.1 trillion.
The report said government spending had been "front-loaded in the first five months", with the subsidy bill reaching 37 per cent of the budget estimate against 30 per cent last year. Higher food and fertiliser subsidy outlays were the main drivers, while capex also remained ahead of last year's run-rate.
On the revenue side, total receipts increased 7 per cent year-on-year to Rs 13.7 trillion. Net tax receipts rose 2.04 per cent to Rs 8.3 trillion, while non-tax receipts increased 9.7 per cent to Rs 4.5 trillion. Non-debt capital receipts rose sharply by 135 per cent to Rs 0.8 trillion.
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The report said tax collections have broadly kept pace with last year, supported by stronger corporate and income tax collections, which offset weaker excise revenues.
"Strong non-tax revenues and non-debt capital receipts have further supported government cash flows, helping partly offset the early acceleration in expenditure," the report added.
The report further said the key monitorable for government finances will be whether the strength in direct tax collections can continue to offset pressure from customs and excise revenues.
