Budget 2024: The Center may announce a fiscal deficit target of 5.3 per cent of gross domestic product (GDP) for FY25 in the next interim budget, which will be tabled on February 1, 2024, Goldman Sachs said. The Center will meet its fiscal deficit target of 5.9 percent of GDP as revenues are likely to be higher than estimates of 0.2 percent of GDP, Goldman Sachs said in its Asia in Focus report.
In FY24 (April 2023 to March 2024), the Center managed to achieve strong tax collection, primarily through direct taxes, according to Goldman Sachs. This gave the government some fiscal space to increase spending while still meeting the budget deficit target of 5.9 percent of GDP.
Government capital expenditure (capex) has played a crucial role in overall investment growth in recent years. However, the focus on investment is expected to continue at a slower pace than in previous years, as the central government aims for fiscal consolidation in the medium term.
Goldman Sachs expects the central government to announce a fiscal deficit target of between 5.2 and 5.4 percent of GDP (with 5.3 percent of GDP as the base case) in FY25, given its medium-term fiscal consolidation target of reaching 4.5% of GDP by FY26.
Goldman Sachs further said that the revenue increase of 0.2% of GDP would help the government meet its budget deficit target. In fact, if spending remains subdued in the current quarter, it could end up consolidating at 5.8% of GDP.
He added that the revenue increase of 0.2% of GDP would be due to higher income and corporate taxes, as well as higher non-tax revenues thanks to higher-than-expected dividends from the RBI and PSUs.
On the spending side, they expect an increase of around 0.4% of GDP, driven by an increase in spending on the main subsidies (0.2% of GDP) and an increase in spending on the aid program. rural employment (0.2% of GDP).
In summary, Goldman Sachs expects the government to meet its fiscal deficit target of 5.9% of GDP despite nominal GDP growth projections of 8.9% year-on-year for FY24, according to first estimates put forward, lower than the 10.5% growth hypothesis of the budget. document.
On the revenue side, Goldman Sachs said income and corporate taxes are expected to increase by 15% in FY25, under indirect taxes. The Goods and Services Tax (GST) is expected to increase by 11 percent.
He also added that the Reserve Bank of India (RBI) is expected to become the net seller of government bonds in FY25, given the demand from foreign institutional investors and domestic investors.
Goldman Sach also said that the RBI may go for two cuts in repo rates in FY25. These two values could reach 25 basis points each, one between July and September and the other between October and December, the agency said.
In FY25, according to Goldman Sachs, the Center will continue to focus on increasing capital spending, but this will likely happen at a slower pace than before.
“We expect the focus to be on investments, but at a slower pace (we expect 10% annual growth in investments) than has been seen in recent years (over 30% CAGR between fiscal year 21 and fiscal year 24). BE),” he said.
On Thursday, Reuters reported that the Center plans to reduce its fiscal deficit by at least 50 basis points in 2024/25 from the 5.9 percent gross domestic product (GDP) target set for 2024, while also looking to increase its capital expenditure by as much as 20 percent.
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