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Strong growth in direct tax collections and robust Goods and Services Tax (GST) and customs revenues have provided the Centre with a fiscal buffer in the first quarter of FY27, helping it stay on track to meet its fiscal deficit target despite higher subsidy spending, according to an ICICI Bank report.
The report said the Centre's Gross Tax Revenue (GTR) grew 14 per cent year-on-year in Q1FY27, driven by healthy growth in both direct and indirect taxes. Net tax revenue rose even faster, increasing 38 per cent year-on-year during the quarter, supported by lower transfers to states in June. Direct tax collections increased 12 per cent year-on-year in the first quarter, with corporate tax collections rising 20 per cent, reflecting robust corporate profitability. The report also noted that as of July 13, net direct tax collections had accelerated further, growing 16.4 per cent year-on-year, indicating continued momentum in tax receipts. "The sustained strength in revenue receipts provides an important fiscal buffer and remains a key positive amid the prevailing global uncertainties," the report said. On the expenditure front, the report said total government spending grew 11 per cent year-on-year in Q1FY27, lower than the 26 per cent growth recorded in the corresponding period last year. While revenue expenditure moderated due to lower interest payments, major subsidies remained elevated, rising 37 per cent year-on-year. At the same time, capital expenditure increased 24 per cent, reflecting the government's continued focus on front-loading productive spending. According to the report, the fiscal deficit stood at Rs 3.1 trillion in the first quarter, accounting for 18 per cent of the Budget Estimate for FY27, the same level as a year ago. It said prudent expenditure management and strong tax collections should help the Centre meet its fiscal deficit target, although higher crude oil and fertiliser prices could increase pressure on subsidy spending in the coming months. The report also highlighted that bank credit growth remained broad-based. Industry credit rose to a 14-year high of 19.2 per cent year-on-year in June, supported by working capital requirements and strong lending to sectors such as infrastructure, construction and vehicle manufacturing. Credit growth to NBFCs remained elevated at 32.2 per cent year-on-year, while vehicle loan growth stayed strong at 17.3 per cent. At the same time, credit card growth remained subdued at 1.9 per cent year-on-year, and gold loan growth decelerated below the 100 per cent mark for the first time since January 2025 as gold prices declined in June.
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