“We expect the general government to stick to the announced fiscal deficit target of 5.1% of GDP for FY25 (or even slightly lower) and announce further consolidation to a deficit of below 4.5% of GDP by FY26. Even if we see some expenditure allocation towards welfare spending, it may not require a reduction in capex, given the higher than expected dividend transfer from the RBI,” Goldman’s Santanu Sengupta said in a report.
Stating that there is limited fiscal space to stimulate the economy given high public debt, he said India’s infrastructure upgrades have created long-term positive growth spillovers which policymakers may not be willing to give up.
The central government’s fiscal impulse breakdown suggests that the very robust capex CAGR of 31% over FY21-24 resulted in a growth boost, while welfare spending has been a net drag since FY22.
“We think this Budget will go beyond just fiscal numbers, and likely make an overarching statement about the long-term economic policy of the government towards 2047 (100 years of Indian independence). We see an emphasis on job creation through labor-intensive manufacturing, credit for MSMEs, continued focus on services exports by expanding GCCs, and a thrust on domestic food supply chain and inventory management to control price volatility,” Goldman said.The Budget is also likely to lay out a path for the future of public finance in India, entailing a roadmap for public debt sustainability, and green finance.Arguing that it expects a tilt and not a pivot to welfare spending, it said welfare spending and transfer payments had a positive impulse on FY20 and FY21 growth, while subsidies were a significant additional boost to growth in FY21, at the beginning of the pandemic. These have been a net drag since FY22, Goldman said.
Sitharaman is scheduled to present the first Budget of the new government on July 23.