The Indian government is expected to tread on the path of fiscal consolidation, despite continuing the spend on subsidies and welfare programmes at the pre-Covid-19 pandemic levels, Goldman Sachs said ahead of the upcoming Union Budget 2025-26.
The central government’s fiscal impulse, however, will remain a drag on growth in fiscal 2026, the global brokerage said on Monday. “We continue to believe the fastest growth pace in public capex is behind us, and we expect capex to grow at or below nominal GDP growth rates from here on.”
The upcoming budget, according to Goldman Sachs, will also likely make an overarching statement about long-term economic policy of the government towards 2047, which will mark 100 years of Indian independence.
“We see continued emphasis on job creation through labour-intensive manufacturing, credit for MSMEs, promoting rural housing programs, and sustained focus on domestic food supply chain and inventory management to control price volatility,” it said.
Goldman Sachs, in its note, answered five key questions on Budget 2025. Here’s a look:
1. Will the government meet the 4.9% of GDP fiscal deficit target in FY25?
“Yes, receipts upside of 0.2% of GDP and lower-than-budgeted capex will likely enable the government to meet the fiscal deficit target despite lower nominal GDP growth,” Goldman Sachs said.
The upside will be driven by higher income tax collections and non-tax revenues from “higher than budgeted dividends from the RBI and state-owned companies”, the note stated. This should offset the shortfall from corporate taxes and excise collections, it added.
