The government is preparing to request Parliament’s approval for additional expenditure in the current fiscal year, mainly to compensate for revenue shortfalls caused by income tax rate cuts and GST reliefs. Finance Minister Nirmala Sitharaman is expected to move a Supplementary Demand for Grants during the winter session. Early estimates suggest the fiscal pressure stems from both lower tax collections and higher spending demands across ministries.
Why the Cash Gap Emerged
Multiple factors converge to create the funding gap. Cuts to personal income tax and GST rates aimed at stimulating consumption are believed to have reduced revenue inflows by roughly ₹1 trillion each. At the same time, the nominal growth of the economy is being weighed down by low inflation, reducing tax buoyancy. With core tax receipts under strain, the government is now turning to supplementary grants — historically used when revenue misses targets or spending commitments rise.
What’s Next and the Risks Ahead
In formalising the additional spending request, the finance ministry is charting the net cash outflow once savings and recoveries are offset. The decision will set the tone for the remainder of the fiscal year and its implications for the fiscal deficit target. Analysts caution that while demand-side tax cuts can stimulate growth, structural caution is required to prevent widening of the deficit beyond authorised limits. Looking ahead, the government faces two choices: offset the revenue loss with faster growth or rein in spending and delay new reliefs.
