RBI Dividend Expected to Offset GST Revenue Shortfall in FY26

RBI Dividend Expected to Offset GST Revenue Shortfall in FY26

Issue: To assess the overall fiscal balance for the government in the current financial year (FY26), particularly how the anticipated revenue shortfall from Goods and Services Tax (GST) rate cuts will be managed and offset by higher-than-budgeted non-tax revenue.

Facts:

• The recent GST rate rationalization (GST 2.0) is expected to cause a net revenue shortfall.
• The GST Council had estimated the fiscal impact of GST rationalization at ₹48,000 crore (or 0.15% of GDP), based on FY24 consumption patterns.
• Tax collections have already moderated this year, and lower nominal GDP growth poses additional challenges to meeting full-year tax targets.

Decision:

A report noted that the net revenue shortfall arising from the GST rationalization is expected to be offset by the higher dividend transfer received from the Reserve Bank of India (RBI).

Key TakeDowns:

• RBI Dividend as Fiscal Cushion: The higher dividend from the RBI, which falls under Non-Tax revenues, is expected to provide substantial support to the Centre’s overall receipts, preventing a major fiscal deficit increase despite the lower tax revenue.
• Marginal Net Shortfall: The government’s expectation is that the actual net revenue shortfall from GST rationalization will be limited, with some estimates putting the Central Government’s loss at only around ₹3,700 crore in FY26.
• Fiscal Consolidation Commitment: Despite the pressures on tax collections, the government aims to continue on its fiscal consolidation trajectory, targeting a gradual reduction in the fiscal deficit in the coming years.
• Consumption Offset: Policymakers hope that the consumption boost resulting from the GST rate cuts will translate into higher GST collections in the coming months, which can further balance the initial impact on revenues.