Mumbai, India's high public debt offers limited fiscal space to adopt welfare measures that can help stimulate the economy, a foreign brokerage said on Monday.
In a report coming weeks before the budget presentation, Goldman Sachs said Finance Minister Nirmala Sitharaman could continue with the fiscal consolidation roadmap, sticking to the 5.1 percent fiscal deficit target announced in the provisional budget.
She said investors expect from the budget some relaxation on the path of fiscal consolidation and a shift in focus towards social spending from capital spending.
However, this is not plausible, the brokerage hinted.
"In our view, there is limited fiscal space to stimulate the economy given high public debt, (and) improvements in India's infrastructure have created positive long-term growth effects that policymakers may not be aware of." willing to give up," he reasoned.
She said the final fiscal deficit target can also be reduced from the current 5.1 per cent, and Sitharaman can further reduce the figure to 4.5 per cent in FY26.
Even if there is "some expenditure allocation" towards social spending, it may not require a reduction in capital expenditure given the Reserve Bank's Rs 2.1 crore dividend transfer, she said.
There is limited fiscal room for stimulus in FY25, she said, noting that interest expenses make up a large proportion of the 5.4 percent of GDP in the general government budget.
"Our fiscal impulse calculations also show that the general government's fiscal policy has been a drag on growth since FY22 and will continue to be so in FY25 and FY26, given the central government's fiscal consolidation objective," said.
Capital expenditure grew at a healthy 31 per cent between FY21 and FY24, driving growth, she said.
The brokerage said the next budget could go beyond fiscal figures and put emphasis on job creation.
To do this, it can focus on labor-intensive manufacturing, credit for small businesses and continue to focus on service exports by expanding global capacity centers. It could also have an impact on the domestic food supply chain and inventory management to control price volatility, according to the report.
It can also chart a path for the future of public finance in India, which will entail a roadmap for public debt sustainability and green finance.
In a report coming weeks before the budget presentation, Goldman Sachs said Finance Minister Nirmala Sitharaman could continue with the fiscal consolidation roadmap, sticking to the 5.1 percent fiscal deficit target announced in the provisional budget.
She said investors expect from the budget some relaxation on the path of fiscal consolidation and a shift in focus towards social spending from capital spending.
However, this is not plausible, the brokerage hinted.
"In our view, there is limited fiscal space to stimulate the economy given high public debt, (and) improvements in India's infrastructure have created positive long-term growth effects that policymakers may not be aware of." willing to give up," he reasoned.
She said the final fiscal deficit target can also be reduced from the current 5.1 per cent, and Sitharaman can further reduce the figure to 4.5 per cent in FY26.
Even if there is "some expenditure allocation" towards social spending, it may not require a reduction in capital expenditure given the Reserve Bank's Rs 2.1 crore dividend transfer, she said.
There is limited fiscal room for stimulus in FY25, she said, noting that interest expenses make up a large proportion of the 5.4 percent of GDP in the general government budget.
"Our fiscal impulse calculations also show that the general government's fiscal policy has been a drag on growth since FY22 and will continue to be so in FY25 and FY26, given the central government's fiscal consolidation objective," said.
Capital expenditure grew at a healthy 31 per cent between FY21 and FY24, driving growth, she said.
The brokerage said the next budget could go beyond fiscal figures and put emphasis on job creation.
To do this, it can focus on labor-intensive manufacturing, credit for small businesses and continue to focus on service exports by expanding global capacity centers. It could also have an impact on the domestic food supply chain and inventory management to control price volatility, according to the report.
It can also chart a path for the future of public finance in India, which will entail a roadmap for public debt sustainability and green finance.
