MUMBAI: Ahead of the Union budget announcement, foreign brokerage Goldman Sachs said it expects a slowdown in the government capex growth in the new financial year. Finance Minister Nirmala Sitharaman is likely to announce a 13 per cent increase in the public capex for the new fiscal, as against the 17 per cent in FY24, and the healthy growth in three years before that, it said in a report.
The government will stick to the fiscal consolidation roadmap and narrow the fiscal deficit further to 4.5 per cent of GDP, it said.
The foreign brokerage said given the BJP’s reduced majority in Parliament, there will be re-allocation of expenditure towards rural transfers and welfare spending.
The brokerage said the multi-quarter low of 5.4 per cent in real GDP growth for the September quarter is due to a mix of slower public capex and also RBI’s restrictions constraining credit growth in the economy.
“We expect capex growth to slow to 13 per cent from over 30 per cent in FY 21-24, while there might be a tilt towards welfare expenditure or transfer payments,” the brokerage said.
“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 report said.
It said the government will target to narrow the fiscal deficit number to 4.5 per cent in its base case, as against 4.9 per cent in FY25.
“Central government fiscal impulse will remain a drag on growth in the next fiscal year,” it said, adding that fiscal consolidation is important for a variety of reasons.
The budget is also likely to lay out a roadmap for public debt sustainability, and financing India’s energy security versus transition needs, it said.
It will also likely make an overarching statement about long-term economic policy of the government towards 2047, when the country achieves 100 years of independence, the report said.
Sitharaman’s budget will continue to emphasise on job creation through labor-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.
