Union Budget 2026: Will GST 2.0 consumption boost help Nirmala Sitharaman adhere to fiscal glide path?
This strong domestic performance comes as Finance Minister Nirmala Sitharaman gears up for Budget 2026, which is expected to strengthen the government’s commitment to strategic spending and economic stability amid complex global challenges.
Budget 2026: GST collections remain flat after interest rate cuts
The government’s Goods and Services Tax (GST) collections have shown remarkable stability in the current financial year (FY 2025-26), even after the comprehensive GST 2.0 rate rationalization implemented in September 2025.
Gross GST revenue for November 2025 was recorded at Rs 1,70,276 billion, indicating a marginal increase of 0.7% annually. Although this represents the slowest growth in the fiscal year, officials say collections are generally in line with expectations following comprehensive interest rate cuts.
More importantly, from April to November 2025, cumulative gross collections reached 14,75,488 billion rupees, showing a strong annual growth of 8.9%. This sustained performance is an important indicator of continued economic activity and better adaptation.
Union Budget: Impact of ‘GST 2.0’
The stabilization in collections follows the biggest overhaul of the indirect tax system since its inception in 2017.
GST 2.0 simplified the multi-layered structure into a streamlined system; It included a 5% ‘merit rate’ for primarily basic needs and a 18% ‘standard rate’ for most other goods and services, as well as a new 40% rate for select luxury goods.
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The reform has been touted as a major booster of consumption, directly reducing taxes on essential goods such as personal care products, packaged food items and even some small cars, leaving more disposable income in the hands of consumers.
While the short-term goal of increasing household spending appears to encourage taxable value growth, the government is closely monitoring collection trends to assess the full long-term impact.
2026 Budget will follow the fiscal road map
The healthy tax revenue stream puts Finance Minister Sitharaman in a strong position to stick to the government’s fiscal glide path.
The 2025 Budget had already set the fiscal deficit target for FY 2026 at 4.4% of GDP, which was in line with the commitment to narrow it to below 4.5% by FY 2026.
This commitment to fiscal prudence is crucial to maintaining global investor confidence.
The budget is expected to continue to focus on high capital expenditure (capex) targeting a record Rs 11.21 lakh crore for the previous fiscal as the key engine of sustainable, long-term economic growth, especially through infrastructure development.
Budget News: Global headwinds and domestic resilience
India’s economic fundamentals continue to be a beacon of strength in an environment of global economic uncertainty, including geopolitical tensions in the Middle East and Europe, persistently high inflation in many advanced economies, and a severe trade shock from the United States.
A major external challenge is the aggressive tariff policy implemented by the US administration in 2025. After an initial 25% tariff, the US increased tariffs on most Indian exports to 50% by the end of August, making Indian goods among the most heavily taxed among the US’s major trading partners.
This measure, linked in part to geopolitical frictions over India’s ongoing imports of Russian oil, has severely affected bilateral trade.
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Meanwhile, the narrative on the Indian economy has changed from mere flexibility to rapid growth, while inflation has fallen significantly, changing the monetary policy calculus of the Reserve Bank of India (RBI).
Far from experiencing a slowdown, the Indian economy delivered a major upside surprise, hitting a six-quarter high in the second quarter of the current fiscal (FY 2025-26) and rising to 8.2%, beating estimates.
The main reason for this strong performance was the 9.1% annual growth in the manufacturing sector and the strong growth in the services sector. This momentum has been supported by private consumer spending (which accounts for around 60% of GDP) and continued high government capital spending.
But the upcoming Budget, the third of Prime Minister Narendra Modi’s third term, faces the unique challenge of balancing national growth targets with the priorities of the formed coalition government.
