Govt likely to surpass FY23 tax collection goal by over $24 billion

India is expected to surpass its tax collection goal by more than 2 trillion rupees ($24.3 billion) in the current fiscal year, according to two officials with knowledge on the matter.

Strong revenue receipts is giving Prime Minister Narendra Modi’s government leeway to contain the budget deficit within 6.4% of gross domestic product amid a ballooning subsidy bill, said the two officials. A finance ministry spokesperson declined to comment on the matter.

Steady collections and measures to reduce tax evasion are helping bolster revenue against a target of 19.34 trillion rupees, they said. The government will likely collect this financial year an additional 300 billion-400 billion rupees from windfall tax imposed on export of some fuels and local production of crude oil from July, the officials said.

The state’s increasing income puts it on track to further narrow the budget deficit in the year ending March 2023 from a record 9.2% of GDP during the first year of the pandemic while sustaining Modi’s free food program, fertilizer subsidies and other inflation-busting measures.

India’s improving tax collections will also help counter sluggish state asset sales, the officials said. The government has only sold about a third of the 650 billion rupees worth of assets targeted for divestment.

India’s union budget, due to be presented in February, will outline the federal spending plan for the coming fiscal year. It’s always a closely-watched event, and especially amid the challenges facing Asia’s third-largest economy including slowing growth and elevated inflation.