Govt will focus on capex, keep allocation for subsidies: Goldman Sachs economist

India remains a bright spot, economy expected to grow 6.7% in 2024: UN

The Indian government is likely to continue with its focus on capital expenditure while keeping aside a budgetary allocation for subsidies, Goldman Sachs chief Indian economist Santanu Sengupta has said.

“From a fiscal strategy point of view as you head into next year, we think there will be two focus areas for the government,” Sengupta told CNBC-TV18. “One, they will be focusing on the capital expenditure because that has the opportunity of crowing in the private capex as well… two is that they will probably have to keep some allocation for the subsidies as well.”

Finance Minister Nirmala Sitharaman is expected to present the budget for the financial year 2023-24 on February 1.

The government has had to ramp up spending on food and fertiliser subsidies this financial year amid a spike in global commodity prices after Russia invaded Ukraine.

Given the volatile commodity environment, the government would possibly allocate a good amount towards subsidies next year as well.

India continuing with economic reforms over the medium term would help boost the potential growth beyond the current estimate of 6 percent, Goldman Sachs said in its 2023 outlook.

Also read: S&P lowers India FY23 GDP growth forecast by 30 bps to 7%

The conditions were conducive for an investment cycle recovery, the brokerage said.

In the current fiscal, the government’s capital spending had risen 25 percent on year to 2.9 percent of the gross domestic product (GDP). The government’s capital expenditure has a GDP growth multiplier of 2.5X4 and could help crowd in further private investments, it added.

Sengupta said he would stick to the view that the Reserve Bank of India would raise the key policy rate by 50 basis points at its upcoming meeting in early December.

He expects India's GDP growth at 7.1 percent in the current fiscal and at 6 percent in the next financial year.