India CEA: Will avoid major slippages in FY26 fiscal deficit aim

India CEA: Will avoid major slippages in FY26 fiscal deficit aim

The Chief Economic Advisor (CEA) of India, V Anantha Nageswaran, has expressed confidence in the government's ability to maintain the FY26 fiscal deficit at the budgeted level of 4.4% of GDP, despite potential revenue losses from GST rate reductions. The official cited an anticipated boom in consumption and expenditure reprioritization as key factors that could offset the impact of the GST cuts [1].

The government has estimated potential losses of ₹48,000 crore in tax revenues due to the GST cuts, based on the FY24 consumption pattern. However, the official noted that the consumption surge during the festive season would partly offset these losses. Additionally, the expected gains from the consumption surge would be higher in the next fiscal year [1].

Nageswaran remains optimistic about achieving the real GDP growth target of 6.3-6.8% for the current fiscal year, despite the US imposing a steep 50% tariff on Indian shipments. The benign inflation, expected good harvest, and direct tax relief are expected to boost consumption and support economic growth [2].

The CEA also mentioned that the nominal GDP growth may miss the budgeted target of 10.1% due to benign inflation. However, he noted that the nominal GDP growth number at 8.8% for the first quarter was better than many had feared. He remains hopeful that the overall impact of GST reforms and other measures will boost household and domestic consumption, thereby containing inflation [2].

In parallel, the Indian government is planning to integrate battery storage systems into some of its coal power plants to manage the increasing capacity of solar power and balance the grid. This initiative aims to optimize the use of existing coal plants while the country expands its non-fossil fuel capacity to 500 GW by 2030 [3].

The current account deficit (CAD) is expected to almost double in the current financial year, FY26, to 1.2% of GDP, compared with 0.6% in FY25, amid rising trade and geopolitical tensions. The sharp increase in the merchandise trade deficit in July 2025 to USD 27.35 billion signals a potential widening of the CAD in the second quarter of FY26 [4].

In conclusion, the CEA's optimism about maintaining the fiscal deficit at the budgeted level and achieving the real GDP growth target is supported by a combination of factors, including consumption boosts, expenditure reprioritization, and the integration of battery storage systems in coal power plants. However, the potential widening of the CAD due to trade and geopolitical tensions remains a concern.

References:
[1] https://m.economictimes.com/news/economy/indicators/fy26-fiscal-deficit-pegged-at-4-4-math-unlikely-to-be-hit/articleshow/123705930.cms
[2] https://www.ainvest.com/news/india-test-battery-storage-coal-plants-balance-grid-solar-surge-2509/
[3] https://m.economictimes.com/news/economy/indicators/nominal-gdp-growth-may-miss-fy26-target-on-soft-inflation-cea/articleshow/123751835.cms
[4] https://www.tribuneindia.com/news/business/amid-tariff-tensions-indias-current-account-deficit-may-double-to-1-2-of-gdp-in-fy26-union-bank-of-india/