India's fiscal health hinges on direct tax collections amid customs, excise pressure

India's fiscal trajectory is increasingly dependent on the strength of direct tax collections as lower customs duties and weaker excise revenues constrain indirect tax receipts, according to a report by Dolat Capital. The research firm noted that customs duties on edible oils and sugar have declined, while excise collections have weakened, pressuring overall indirect tax revenues.

Government spending has remained front-loaded during the first five months of the financial year, driven by higher capital expenditure and subsidies. The primary deficit reached 67 per cent of the budget estimate compared with 23 per cent in the corresponding period last year. The fiscal deficit stood at Rs 7.1 trillion, or 41.9 per cent of the budget estimate up to August 2026, compared with Rs 5.9 trillion a year earlier. Total expenditure rose 10.1 per cent year-on-year to Rs 20.7 trillion, with capital expenditure increasing 18.6 per cent to Rs 5.1 trillion, while subsidy outlays reached 37 per cent of the budget estimate against 30 per cent previously.

Net tax receipts rose 2.04 per cent to Rs 8.3 trillion, with stronger corporate and income tax collections offsetting weaker excise revenues. Strong non-tax revenues and non-debt capital receipts have supported government cash flows. Dolat Capital identified direct tax collection strength as the key monitorable for whether government finances can offset pressure from customs and excise revenues.