Union Budget will not compromise on capex spend, fiscal path; focus on jobs and inflation: Goldman Sachs

Goldman Sachs note implies any welfare-oriented spending may not require reduction in capex given that Centre has received a much higher dividend payout from RBI

Goldman Sachs is expecting a Budget that will not compromise on the capex spend or any relaxation in the fiscal consolidation path. It has turned cautious on raising expectations of any relaxation in fiscal consolidation and a pivot towards welfare spending at the cost of capex, according to a note published on July 8.

The note expects Centre to stick to the fiscal deficit target of 5.1 percent for FY25, which could be further lowered to 4.5 percent by FY26.

The Goldman Sachs note implies any welfare-oriented spending may not require reduction in capex given that Centre has received a much higher dividend payout from RBI recently. "Centre's robust capex CAGR of roughly 31 percent between FY21-24 has resulted in a growth spurt, while welfare spend has been a net drag since FY22", Goldman Sachs said.

The fiscal policy may continue to weigh on growth in FY25 as well, keeping in view the fiscal consolidation target being pursued by the Centre, the note added.

The note said there is limited fiscal space for Government to stimulate growth as public debt remains high, and increased infrastructure spend has created growth spillover which will be hard to give up. Instead the Union Budget may build on the vision for a long-term policy towards 2047, with focus on jobs and reining in inflation.

"We think this budget will go beyond just fiscal numbers, and likely make an overarching statement about long-term economic policy of the government towards 2047. We see an emphasis on job
creation through labour-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 note said.

The Goldman Sachs note has listed out key areas where it sees likely thrust from the Centre.

1. Rural
Focus could be on food supply chain to control price volatility, with a focus on rural infrastructure, domestic food production, cold storage and food processing.

2.
Job in Manufacturing
Sectors like textile, footwear, toys may be possible beneficiaries here.

3.
MSME Credit
This group produce roughly 30% of India's output and employ over 12 crore workers.

4.
Skill India
Centre may plan to enhance vocational programs or on-the-job training for the work force.

5.
Quality jobs in Services
Goldman Sachs expects continued focus on services exports through expanding Global Capability Centres (GCCs), Global Technology Centres (GTCs), and Global Engineering Centres (GECs).

It sees risks to major structural reforms given the reduced political mandate of Modi 3.0, and said Centre would require greater political capital the push through land reform and farm sector reforms.