Goldman Sachs: Tight Budget Expected in 2024-25

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Goldman Sachs indicated on Monday that due to a higher-than-anticipated dividend transfer from the RBI, the Central government of India is likely to maintain or even slightly lower its fiscal deficit target of 5.1% of GDP for FY25 in the upcoming Budget. This assessment holds true even if additional funds are allocated towards welfare spending, contrary to expectations among some investors of a deviation towards more relaxed fiscal consolidation and increased welfare allocations over capital expenditure.

“We refute both viewpoints: there is limited fiscal leeway, given India’s high public debt levels, to stimulate economic growth,” Goldman Sachs stated.

The recent dividend transfer from the RBI, exceeding Rs 1 trillion (0.3% of GDP) for FY25, bolsters the government’s fiscal position. Despite potential increments in welfare expenditure, the firm believes there’s no necessity to reduce capital expenditure.

Goldman Sachs highlighted the significant growth impact of robust capital expenditure averaging around 31% from FY21 to FY24, contrasting with welfare spending, which has been a negative contributor since FY22.

The investment research firm anticipates the upcoming budget to transcend mere fiscal figures, projecting a comprehensive economic policy statement guiding India towards its 2047 milestone—100 years of independence. Key policy focuses are likely to include job creation through labor-intensive manufacturing, enhanced credit facilities for MSMEs, and expanding service exports through Global Capability Centers (GCCs).

Furthermore, the budget is expected to outline a sustainable public debt roadmap and promote green finance, balancing India’s energy security with its transition needs.

Key sectors such as rural infrastructure, domestic food supply chains, and inventory management are anticipated to receive attention. Initiatives could involve improving rural connectivity, incentivizing food production, and bolstering cold storage and food processing capabilities.

In terms of employment, efforts may prioritize skilling programs to bridge educational gaps swiftly, alongside continued support for service exports through expanding Global Technology Centers (GTCs) and Global Engineering Centers (GECs).

Goldman Sachs underscores the significance of these initiatives in navigating India’s economic trajectory towards sustainable growth and resilience.