ICRA notes weak growth in India’s tax collections in Apr-Jul FY26

India’s government security (G-sec) yields rose by 22 basis points (bps) in August this year, and ICRA foresees the 10-year G-sec yield to trade between 6.40-6.70 per cent in the immediate term owing to several developments that have raised concerns around an overshooting in G-sec supply.

The concerns include the impact of goods and services (GST) rationalisation on the fiscal health of the central government and the states.

ICRA foresees India’s 10-year government security (G-sec) yield to trade between 6.40-6.70 per cent in the immediate term owing to several developments that have raised concerns around an overshooting in G-sec supply.
The weak growth in tax collections in the first four months of FY26 implies that the required expansion in the remaining eight months to meet budget estimates is quite steep.

However, yields could cool if the government sticks to its borrowing calendar for the second half (H2) of fiscal 2025-26 (FY26) that will be released in September end, ICRA said in a research note.

The Indian government’s fiscal deficit surged to ₹4.7 trillion in the first four months of FY26 from ₹2.8 trillion in the corresponding period of FY25 owing to multi-fold rise in the revenue deficit and the frontloading of capital expenditure (capex).

The muted 0.8 per cent growth in gross tax revenues (GTR) combined with the healthy 17-per cent increase in central tax devolution (CTD) compressed the net tax revenues in the four months, it noted.

The weak growth in tax collections implies that the required expansion in the remaining eight months of this fiscal to meet FY26 budget estimates is quite steep, especially for income tax, although healthy progress in non-tax and miscellaneous capital receipts provides some comfort, ICRA added.

Fibre2Fashion News Desk (DS)