The Center is expected to announce a fiscal deficit target of 5.2 to 5.4 percent of gross domestic product (GDP) in FY25, given the medium-term fiscal consolidation target of achieving a fiscal consolidation target of 4.5 percent of GDP by FY26 reach GDP. This is stated in the budget report of Goldman Sachs India.
The report stated that the government would achieve the fiscal deficit target of 5.9 percent of GDP for FY24, with an expected increase in revenues of 0.2 percent of GDP. “If spending remains subdued in the current quarter, the deficit could even reach 5.8 percent of GDP,” Goldman Sachs said.
While income and corporate taxes are expected to grow by around 15 percent in FY25, the government is likely to reduce its disinvestment target in the next fiscal. “Except for FY18 and FY19, disinvestment and asset sale proceeds have fallen short of budget estimates in the last eight years. Based on tracking estimates, we expect disinvestment revenues in FY24 to be lower than the budget estimate,” the budget outlook report said.
Also read: Center may peg FY25 fiscal deficit at 5.3% in interim budget: Goldman Sachs
The investment banking firm also mentioned that the focus on capital expenditure (capex) would continue, but at a slower pace than what has been seen in recent years given the medium-term path of fiscal consolidation. The government increased capital expenditure by more than 30 percent between FY21 and FY24, raising the budgeted capital investment target to 3.3 percent of GDP, the highest in 18 years. “They are likely to achieve the capex target in FY24 given the upside in gross tax revenues… We expect capex growth to slow to around 10 percent year-on-year in FY25,” the Goldman Sachs report said .
The report indicates that government borrowings are expected to remain high in FY25, but with sufficient demand for government bonds from foreign institutional investors and domestic investors in a policy rate easing cycle, we believe the Reserve Bank of India will be a net seller of bonds could be. government bonds in financial year 25.
To finance the central government’s fiscal deficit of nearly Rs 18 trillion in FY25, Goldman Sachs has estimated a net borrowing of around Rs 12 trillion, after taking into account non-market financing from small savings and sovereign wealth funds. For state governments, it has assumed that 70 percent of the budget deficit in financial year 25 – 2.5 percent of GDP – will be financed with market borrowing.
“This translates into net government borrowing of INR 5.8 trillion in FY25,” the report said.
The report also said that India’s upcoming inclusion in the JP Morgan Government Bond Index from June 2024 would strengthen net inflows from foreign institutional investors in FY25.
First print: January 12, 2024 | 4:19 PM IST