Populist expenditure may not hit govt's fiscal deficit targets: Goldman Sach
elections invariably dents government finances, but this time around it may not be the same, thanks to strong federal revenues and a liberal dividend payment by the Reserve Bank of India (RBI), Goldman Sachs said. There could be some expenditure cuts as well.
It is likely that a cut in public capital expenditure (as a % of GDP) will mean the government will need support from the private sector to step up capital investments, among a reduction in other current expenditures.
«We are confident about the government adhering to the fiscal consolidation path,» said Santanu Sengupta, chief India economist at Goldman Sachs. «If we analyse their post-pandemic behaviour approach, after the expansion of the deficit, they have been adhering to the path of consolidation.
The buffer, partially, is coming from the extra dividend transfers and if you look at last month's corporate tax and income tax numbers, you would've seen that tax revenues have also caught up.»
The government is targeting a fiscal deficit of 5.9% of GDP in FY24 and given the medium-term fiscal consolidation path, it intends to reduce the fiscal deficit by almost 1.5% of GDP over the next two years, to achieve a target of 4.5% of GDP by FY26.
In the past few years, and especially after the pandemic, public capex has most likely underpinned a recovery in investments. The rate of growth in government capex seen in the past few years cannot be sustained going forward.
«To offset this, the Indian private corporate sector will have to step in,» Sengupta said.
The sector has an opportunity to increase investment growth over this decade as companies re-align their supply chains and potentially diversify beyond China. Besides, deleveraged corporate sector balance sheets
