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Informist, Monday, Jan. 13, 2025

 

NEW DELHI – The Indian government is likely to continue to focus on fiscal consolidation in the Union Budget for 2025-26 (Apr-Mar), to be presented on Feb. 1, as the public debt-to-GDP ratio remains high, Goldman Sachs said in a report Monday. A continued focus on fiscal consolidation, economists at Goldman said, will remain a drag on growth in the next financial year. 

 

Goldman expects the government to target a fiscal deficit of 4.4–4.6% of GDP in FY26 from 4.9% of GDP in the current fiscal. The finance ministry, in a half-yearly review report in December, has already said that it aims to lower the fiscal deficit to less than 4.5% of GDP in FY26, as was first announced in the Union Budget for FY22.

 

According to Goldman, a reduction of the general government fiscal deficit, Centre and states combined, by 100 basis points to around 7% of GDP by FY30 from FY25 with a nominal GDP growth of around 11% would eventually reduce the general government debt to below 80% of GDP form 85% of GDP in FY25. "Thus, to maintain a sustainable and declining (as a percentage of GDP) debt trajectory over the medium term it is imperative that the Union government sticks to its path of fiscal consolidation," the report said.

 

Goldman economists believe that the pace of government capital spending has peaked and is all set to slow down in FY26. Government capital expenditure will either grow at or below the nominal GDP growth rates from here on, Goldman said. "Overall, there is not much room to boost welfare spending, but we expect the pre-pandemic trends in overall welfare spending to continue."

 

The report also said that the Reserve Bank of India will have to be a net buyer of government bonds in FY26, despite adequate demand, to inject liquidity in the banking system and partly offset foreign-exchange sales related rupee liquidity drain. "This is important to aid transmission in a monetary policy easing cycle which we expect to start with a 25 bps repo rate cut later in the quarter," the report said.  End

 

Reported by Shubham Rana

Edited by Tanima Banerjee

 

 

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