Union Budget To Prioritise Fiscal Targets, Jobs, And Inflation: Goldman Sachs

Goldman Sachs highlighted that the centre's significant CAGR in capital expenditure, averaging around 31 per cent from FY21 to FY24, has driven notable economic growth

The Union Budget for the fiscal year 2024-25 is likely to prioritise maintaining capex spending levels and adhering strictly to fiscal consolidation goals while maintaining a special focus on job creation, as per Goldman Sachs. In their note published on Monday, they caution against expecting any relaxation in fiscal consolidation measures or a shift towards increased welfare spending at the expense of capital expenditure.

According to the Goldman Sachs note, it is anticipated that the centre will maintain its fiscal deficit target of 5.1 per cent for FY25, with a potential further reduction to 4.5 per cent by FY26. The note suggests that any emphasis on welfare-oriented spending may not necessitate a reduction in capital expenditure, especially considering the recent substantial dividend payout received by the Centre from the RBI. 

Goldman Sachs highlighted that the centre's significant compound annual growth rate (CAGR) in capital expenditure, averaging around 31 per cent from FY21 to FY24, has driven notable economic growth, whereas welfare spending has been a relative drag since FY22.

As per the note, the fiscal policy is expected to continue restraining growth in FY25 due to the centre's pursuit of fiscal consolidation targets. The note emphasised that the government has limited fiscal room to stimulate growth, given the high level of public debt. Additionally, the increased infrastructure spending has generated significant economic benefits that may take time to forego. Instead, the upcoming Union Budget might focus on establishing a long-term policy framework leading up to 2047, prioritising job creation and managing 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 reads.