New Delhi [India], September 2 (ANI): The Centre's fiscal position remains comfortable in the early months of FY27, but slower nominal GDP growth could put pressure on the government's fiscal deficit target of 4.3 per cent of GDP, Union Bank Research said in a report.

The report said the government has managed to increase capital spending while keeping the fiscal deficit under control, helped by strong tax collections. However, weaker-than-expected nominal GDP growth could reduce the government's fiscal space and may require it to control spending in the second half of the financial year.

Union Bank Research has lowered its estimate for FY27 nominal GDP growth to 10-11 per cent from 13-15 per cent earlier. It said the lower growth would limit the benefit expected from higher nominal GDP in meeting the fiscal deficit target.

'This may have an impact on fiscal dynamics as the expected space from higher nominal growth in achieving budgeted deficit of 4.3% of GDP is low now and may require expenditure compression for meeting the targets this year,' the report said.

During April-July FY27, the fiscal deficit stood at Rs 4.55 lakh crore, or 26.8 per cent of the annual budget estimate. This was lower than Rs 4.68 lakh crore, or 30 per cent of the revised estimate, recorded during the same period last year.

The improvement came despite a significant rise in government spending. Total expenditure increased 12.7 per cent year-on-year to Rs 17.62 lakh crore, while capital expenditure rose nearly 30 per cent to Rs 4.51 lakh crore. Capital spending has already reached 37 per cent of the full-year budget target.

Government receipts also remained strong, rising 19.3 per cent to Rs 13.07 lakh crore during the April-July period.

Income tax collections increased 24.3 per cent, while corporate tax collections rose 20.8 per cent. Customs revenue grew 38.2 per cent and GST collections increased 16 per cent.

However, the report flagged rising subsidy costs as a concern. Total subsidies increased 35 per cent to Rs 1.53 lakh crore, while urea subsidy rose 58 per cent to Rs 66,058 crore.

Union Bank Research said the rise in subsidies will need to be closely monitored during the remaining months of FY27.

The report also highlighted the importance of disinvestment receipts in the second half of the financial year. It said such non-debt capital receipts would remain important for maintaining fiscal discipline.

Overall, Union Bank Research said the FY27 fiscal deficit target of Rs 16.96 lakh crore appears achievable based on the April-July data. However, achieving the target will increasingly depend on continued growth in tax collections and tight control over government spending in the coming months. (ANI)