India to meet FY27 fiscal deficit goal of 4.3% despite GST cut: S&P Global Ratings

S&P Global Ratings on Monday said it is confident that the Indian government will achieve its 4.3% fiscal deficit target for FY27 despite a projected dip in goods and services tax (GST) receipts following the rate streamlining in September 2025.The Union Budget signals a firm commitment to fiscal discipline, strengthening a trajectory of steady consolidation that aligns with global expectations, the global rating agency said.By maintaining a clear roadmap toward narrowing the fiscal deficit, targeting 4.4% of GDP for FY26 and 4.3% for FY27, the central government is signalling a balance between growth and responsible spending.”We believe India (BBB/Stable/A-2) will hit its fiscal 2027 deficit target despite the government budgeting for lower Goods and Services Tax (GST) receipts, following the streamlining of GST rates in September 2025. There is upside to GST revenues coming from stronger consumption and higher collection efficiency, in our view,” S&P said.In addition, support for meeting the deficit target will stem from continued large dividends from the central bank and potential capital underspending, it added.The global rating agency anticipates that consumer spending and public investments will maintain India’s real GDP growth at 6.7% in FY27 and 7% in FY28.”These growth rates continue to place India above sovereign peers at similar income levels and should continue to support fiscal revenue increase,” it said.According to the rating agency, the lowered GST rates will support middle-class consumption and complement income tax cuts. These changes are likely to make consumption a greater driver of growth compared with investment, both in this fiscal year and the next.To counter high US tariffs impacting exports, India’s FY27 Budget focuses on investment-led growth, increasing total capital outlay to 5.6% of GDP from 5.1%. The strategy includes a shift to targeting a 49-51% central government debt-to-GDP ratio by FY31, with a focus on manufacturing, infrastructure, and potential trade deals with the US to boost labour-intensive sectors.”If India can secure a trade agreement with the US, it should reduce uncertainty and enhance confidence, which would boost labour-intensive sectors,” it said.

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