India's Fiscal Targets and Economic Growth

S&P Global Ratings on India's Fiscal Performance

• Revenue and Fiscal Deficit Targets: S&P Global Ratings acknowledged India's strong history of meeting revenue and fiscal deficit targets at the central level, aligning with the Union Budget projections for FY26.

• Dividend from RBI: The targets are considered realistic, including an enhanced dividend from the Reserve Bank of India (RBI), which is pre-discussed with the government to supplement the budget.

Fiscal Deficit Objectives

• The Centre aims to reduce the fiscal deficit to 4.4% of GDP by FY26, down from a revised estimate of 4.8% for FY25.

• S&P anticipates that strong economic growth, higher than similar income economies, coupled with high revenue levels and reduced fiscal deficit, will improve fiscal and other economic metrics.

Tax Incentives and Economic Growth

• Tax Reforms: The Union Budget introduced a significant tax regime change, including a zero-income tax slab for individuals earning up to Rs 12 lakh annually, aimed at enhancing consumer spending and economic growth.

• The expectation is that steady economic growth will increase income tax revenue.

Projected Fiscal Deficit Reduction

• S&P earlier projected a gradual decrease in the general government fiscal deficit to 6.8% of GDP by 2028, from 7.8% in 2025, in line with central government deficit reduction to 4.2% of GDP.

Shifts in Global Trade Patterns

• Apple's strategy shift, with increased shipments from India to the US, reflects reduced US dependency on Chinese goods, and vice versa, indicating potentially lesser impact of future tariff increases on both economies.