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The government is expected to announce a fiscal deficit target in the range 5.2-5.4 per cent of GDP in the interim Budget for FY25, in line with its commitment to medium term fiscal consolidation path, investment bank Goldman Sachs said in a report.
While the interim Budget will be a vote-on-account with a proper Budget later on in the year once a new government is formed after the elections, still some significant policy announcements are also expected.
Investors will also need to look out for capex growth with fiscal consolidation and the supply of government bonds, which will be a function of its borrowing programme.
Goldman Sachs said the focus on capex will continue but at a slower pace of 10 per cent on year, “given the fiscal constraints.” The government borrowing is likely to remained elevated in FY25. The report said that with adequate demand for government paper from foreign and domestic investors, the Reserve Bak of India could be a net seller of G-Secs next fiscal year. This is against a backdrop of easing rates with the two repo rate cuts of 25 basis points each expected in the last half of the fiscal year.
Fiscal consolidation
Robust direct tax collections in the current fiscal year have given the government headroom to spend more and yet meet its fiscal deficit target of 5.9 per cent of GDP, said Goldman Sachs.
It said it expected income and corporate taxes to grow at 15 per cent in FY25, while corporate earnings are seen growing at 15 per cent in 2024.
Goods and services tax is expected to report an 11 per cent growth in FY25. The government may also lower its disinvestment target in FY25, given that actual receipts have always fallen short of targets in the last 8 years.
Capex
Given the government’s thrust on expenditure on infrastructure, it will most likely meet its capex target in FY24, but the capex growth will be lower in FY25 than before, because it has to balance between fiscal consolidation and growth.
“Government capex has aided overall investment growth in recent years, and we expect the focus on capex to continue, but at a slower pace than what has been seen in the last few years, given the medium-term fiscal consolidation path of the Central government,” it added.
The government had focused on raising capex spend by over 30 per cent annually over the last three years raising the budgeted amount to 3.3 per cent of GDP.
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