FM to Seek Parliament Nod for Extra Spending to Cover Tax Reliefs

FM to Seek Parliament Nod for Extra Spending to Cover Tax Reliefs

Issue: To obtain Parliamentary approval (via Supplementary Demands for Grants) for additional government funds required to offset the revenue shortfall caused by the significant tax rate cuts implemented through the recent personal income tax and Goods and Services Tax (GST) reforms.

Facts:

• Union Finance Minister Nirmala Sitharaman is expected to seek Parliament’s nod for additional government funds during the upcoming winter session for the fiscal year 2026.
• The need for extra spending is driven by the estimated annual revenue impact of ₹1 trillion for personal income tax relief and over ₹1 trillion for GST reforms.
• The tax cuts (GST 2.0) were implemented with the intention of delivering a ₹2 trillion demand stimulus to the economy and boosting consumption.
• The fiscal deficit so far stood at 38% of the annual target (April to August), compared to 27% in the year-ago period, indicating a greater strain on revenue receipts.

Decision:

The Finance Minister is expected to present the Supplementary Demands for Grants to Parliament to secure approval for net additional spending to cover the short-term revenue loss arising from the major direct and indirect tax reliefs.

Key TakeDowns:

• Fiscal Trade-Off: The government is acknowledging the short-term cost of the tax cuts, which creates a need for higher government spending or borrowing (fiscal slippage) to maintain planned public expenditure.
• Consumption Boost Buffer: Policymakers are hopeful that the consumption boost arising from the tax relief will eventually increase revenue collections (tax buoyancy) and offset the initial revenue loss in the long term.
• Revenue Cushion: The revenue impact is partially cushioned by reduced government subsidy burdens due to cooling food and crude oil prices, and the Reserve Bank of India’s (RBI) record dividend payment.
• Addressing Nominal GDP Risk: The supplementary grants also aim to mitigate the risk arising from low nominal GDP growth this year, caused by very low Wholesale Price Index (WPI) inflation.