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Govt to get extra headroom to spend on defence due to strong fiscal position: Report

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New Delhi, May 31: With the strong emerging fiscal position in 2025-26, the government is likely to have some additional headroom to meet unforeseen expenditure on account of defence, according to a Bank of Baroda report released on Saturday.

The observation assumes importance in the backdrop of the tensions with Pakistan following the Pahalgam terror attack and Operation Sindoor. In its outlook for FY26, the report points out that the government has budgeted a fiscal deficit of 4.4 per cent of GDP, assuming 10.1 per cent growth in nominal GDP.

“We expect this growth to be around 11 per cent, as we believe real GDP will range between 6.4-6.6 per cent this year,” the report states. This is expected to provide additional fiscal space to the government.

“Given that the government is off to a speedy start in FY26, with April 2025 data showing that revenue receipts are already at 7.5 per cent of the budgeted target versus at 6.8 per cent of target achieved last year during the same period, we expect the government to meet its revenue targets this year.

The income tax cut will also give a boost to consumption, which in turn will support indirect tax receipts,” the report states. On the spending front, keeping up with past trends, the government has begun front loading of expenditure from Q1 itself, with capex in April already at 14.3 per cent of FY26 budget estimate versus 8.9 per cent last year during the same period, the report further states.

Despite this, the fiscal deficit is still only at 11.9 per cent of FY26 budget estimate versus 13 per cent last year which indicates that the government will be able to meet its fiscal deficit target in the current financial year, the report added.

The report also points out that the Centre’s fiscal deficit was at 4.8 per cent in the financial year 2024-25, in line with the government’s revised projections. Better than expected growth in nominal GDP (9.8 per cent as per provisional estimate versus 7.6 per cent as per FY25 revised estimate), and some trimming in expenditure helped the government achieve this target.

Revenue growth noted some moderation, mainly led by revenue receipts. Within revenue receipts, income tax and GST collections registered some shortfall. Corporate tax collections and non-tax revenue growth outperformed FY25 revised estimate targets. On the spending front, while capital expenditure surpassed its revised budgetary FY25 target, revenue expenditure witnessed some shortfall.

This was not on account of subsidies, as both food and fertilizer subsidies fell in line with budgeted projections, the report added. Major ministries which registered higher than budgeted spending included: consumer and food affair, road & transport, rural development, home affairs and renewable energy.

IANS

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