Goldman Sachs Predicts India’s Budget Plans for 2024-25
New Delhi, India – Investment banking company Goldman Sachs expects the Indian government to maintain its fiscal deficit target of 5.1% of GDP for 2024-25 in the upcoming Budget on July 23. The fiscal deficit is the gap between the government’s total revenue and total expenditure, indicating the borrowings needed.
The government aims to reduce the fiscal deficit to below 4.5% of GDP by 2025-26. In the Interim Budget earlier this year, the target was set at 5.1% for 2024-25. Goldman Sachs noted that even with welfare spending, higher-than-expected dividends from the RBI might prevent a reduction in capital expenditure (capex).
For 2023-24, the fiscal deficit target was initially 5.9% of GDP but was later revised to 5.8%. Interest expenses make up a large part of the budget at 5.4% of GDP, leaving limited fiscal space for stimulus in 2024-25. The primary deficit, which is the fiscal deficit minus the previous year’s interest payments, is at 3.5% of GDP for 2023-24.
Goldman Sachs’ report suggests that the general government’s fiscal policy has been a drag on growth since FY22 and will continue to be so in FY25 and FY26 due to fiscal consolidation targets. However, capex is expected to provide a positive impact, while welfare spending may remain a drag.
The upcoming Budget is expected to outline long-term economic policies, focusing on job creation, credit for MSMEs, services exports, and domestic food supply chain management. It will also address public debt sustainability and green finance.
Despite expectations of a shift towards welfare spending, Goldman Sachs believes that limited fiscal space and the positive impact of infrastructure upgrades will prevent significant changes in fiscal policy. The government has relied on capex to boost the economy since the pandemic, with capex growth outpacing nominal GDP growth from FY21-24.
The interim budget presented on February 1 covered financial needs until a new government was formed after the Lok Sabha polls. The upcoming Budget will be Finance Minister Nirmala Sitharaman’s sixth, surpassing the record of former Prime Minister Morarji Desai. The budget session of Parliament will start on July 22 and conclude on August 12.
