Tax/GDP Ratio Estimated For FY27 Slowest in Six Years

Chennai: The estimated gross tax-to-GDP ratio for FY27 is the lowest in six years, while the fiscal deficit marked the slowest reduction since FY19 due to GST rate cuts and income tax exemptions announced in 2025.

The gross tax revenue-to-GDP ratio at 11.2 per cent, and net tax revenue-to-GDP ratio at 7.3 per cent are budgeted to be at the lowest levels in the past six years in FY27. The net tax/GDP ratio during FY22-FY26 averaged around 7.6 per cent. The GST rationalisation announced in mid-FY26 and income tax exemptions in the FY26 budget have led to a declining tax ratio. However, an improving tax base in the ensuing years and improving potential growth of the economy, as articulated in the Economic Survey 2025-26, may help the net tax collection/GDP to swing up, finds India Ratings.

Similarly, the fiscal deficit reduction of 5bp to 4.3 per cent of GDP for FY27 marked the slowest reduction since FY19, which had made a reduction of 2bp. This too is due to slowing revenues from short-term impacts of tax reforms introduced in FY26. Nevertheless, with low inflation, this will boost the economy in FY27, which Ind-Ra expects to grow at 6.9 per cent, said Paras Jasrai, Economist and Associate Director, Ind-Ra.

Moreover, the debt/GDP ratio is budgeted to fall to a seven-year low of 55.6 per cent in FY27 from 56.1 per cent in Revised Estimate of FY26. Reducing debt is crucial for the Indian economy as it provides fiscal legroom during crisis situations. However, around 40 per cent of the revenue receipts are committed towards interest payment of the previous year’s debt. in FY27. This remains at a six-year high, significantly above the FY16-FY20 average of 36.5 per cent. Lower leverage makes way for expenditure channelisation towards development purposes as against committed expenditure. The debt/GDP is targeted by the government to decline to 49 per cent -51 per cent by FY31.

Non-tax revenue is budgeted to decline 0.2 per cent in FY27 against RE FY26. Dividends from banks, financial institutions, and the Reserve Bank of India (RBI), which is 45.6 per cent of non-tax revenue in FY26 (RE), are budgeted to grow 3.7 per cent in FY27 against 9.3 per cent in FY26 BE and 30 per cent in FY26 RE.

The actual accrual from disinvestment receipts was just 40.7 per cent of the budgeted level during FY20-FY25. Looking at the recent disinvestment performance, there could be some slippages in disinvestment receipts