Against the growing expectation among investors that India’s full-year Union Budget for FY25 will see relaxation in the fiscal consolidation path and a pivot towards welfare spending from capex, Goldman Sachs on Monday said it is of view that there is limited fiscal space left to stimulate the economy given high public debt.
The investment bank said India’s infrastructure upgrades have created long-term positive growth spillovers, which policymakers may not be willing to give up. Goldman Sachs believes the Budget will go beyond just fiscal numbers, and likely make an overarching statement about long-term economic policy of the government towards 2047 (100 years of Indian independence).
The Budget will be presented by the Finance Minister Nirmala Sitharaman on July 23.
"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. The budget is also likely to lay out a path for the future of public finance in India, entailing: a) a roadmap for public debt sustainability, and b) green finance: the role of public finance in balancing India’s energy security vs. transition needs," Goldman Sachs said.
In May, the RBI transferred 0.3 per cent of GDP extra dividend to the government. Goldman Sachs said if the higher than budgeted dividend from the RBI is used for increasing expenditure, capex growth could increase to 21 per cent YoY (from 17 per cent YoY BE) while current expenditure growth could increase to 5 per cent YoY if the government sticks to its fiscal deficit target of 5.1 per cent of GDP in FY25.
On the other hand, if the extra dividend is allocated to welfare schemes, subsidies, transfer payment, or tax cuts, it estimate the largest boost from subsidies and welfare expenditure, while the impact from a cut in tax to be the least.
Sector-wise expectations In the manufacturing sector, Goldman Sachs sees a clear emphasis on labor-intensive manufacturing through fiscal incentives: Global hub for toy, textile, apparel and commercial aircraft manufacturing.
In the housing sector, it noted that 26 million houses have been built under the rural housing scheme since 2016. It sees Budget's focus on slum redevelopment in major cities, reduce regulatory costs (registration), regulatory reforms enabling automatic approvals and clean drinking water for households in rural and urban areas.
In the service sector, it sees expansion of Global Capability Centres (GCCs) , Global Technology Centres (GTCs) and Global Engineering Centres (GECs). Focus may also be on tourism for job creation, it said.
For agriculture sector, it sees agri-infra projects such as cold storage facilities, expansion of more efficient irrigation network, grading and sorting units and food processing.
It sees incentives in Budget to increase domestic production of edible oil, pulses, vegetables, and fruits, expand dairy co-operatives, fisheries. Besides, it sees a reduction in input costs of machinery, increase in availability of seeds, allocation for price stabilisation fund for vegetables, pulses etc.
In the infra sector, Goldman Sachs sees continued focus on infrastructure creation, through more rail network . Focus on East and NorthEast India is likely. It sees addition of 5,000-plus km of new rail tracks every year for the next few years.
In the insurance sector, GS sees policy towards insurance for unorganized workers. As of FY22 around Rs 10,900 crore premium was collected and Rs 16,700 crore was paid in claims under government insurance schemes. The investment bank sees insurance schemes for taxi, truck and 3-wheeler drivers.