MUMBAI: A Shift in Government Spending Priorities

As the Union budget announcement approaches, Goldman Sachs, a leading foreign brokerage, forecasts a deceleration in government capital expenditure (capex) growth for the upcoming financial year. Finance Minister Nirmala Sitharaman is anticipated to propose a 13% increase in public capex for the new fiscal, a decrease from the 17% growth seen in FY24.

Fiscal Consolidation and Economic Strategy

The government is expected to adhere to its fiscal consolidation plan, aiming to reduce the fiscal deficit to 4.5% of GDP. Goldman Sachs highlights the BJP's reduced parliamentary majority as a factor that may lead to a reallocation of expenditure towards rural transfers and welfare spending.

Economic Growth and Public Spending

The brokerage attributes the multi-quarter low of 5.4% in real GDP growth for the September quarter to slower public capex and RBI-imposed credit growth restrictions. "We expect capex growth to slow to 13% from over 30% in FY 21-24, with a potential shift towards welfare expenditure," the report states.

Looking Ahead: Fiscal Policies and Economic Vision

Goldman Sachs emphasizes the importance of fiscal consolidation for economic stability and growth. The upcoming budget is also expected to outline strategies for public debt sustainability, energy security, and a long-term economic vision leading up to India's 100th year of independence in 2047.