Goldman Sachs expects the Indian government to curb its investment spending in the coming years as it curbs its budget deficit. This could give the private sector more scope to pick up the slack.
The Indian government has budgeted a record 10 trillion rupees ($120 billion) for investment in the fiscal year through March 2024. However, the government is also committed to bringing down its budget deficit to 4.5% of GDP in 2025-26 from 5.9% in the current year.
The Indian government plans to curb its budget deficit by rationalizing subsidies, increasing tax revenue, enhancing asset monetization, and cutting back wasteful expenditures.
On rationalizing subsidies, the government plans to reduce subsidies on food, fertilizer, and fuel, which are a major drain on the budget. On increasing tax revenue, the Indian government is looking to increase tax revenue by widening the tax base and improving tax compliance. On enhancing asset monetization, the government plans to sell off non-core assets, such as public sector companies and land, to raise revenue. On cutting back wasteful expenditures, the Indian government is committed to cutting back wasteful expenditures such as travel and entertainment costs.
In addition to the above measures, the government is also focusing on boosting economic growth. This will help to increase tax revenue and reduce the need for government borrowing.
Goldman Sachs economists Santanu Sengupta, Arjun Varma, and Andrew Tilton wrote in a note on Monday, "The rapid pace in capital expenditure growth in the past few years cannot be sustained going forward." The economists expect private sector investment activity to pick up in the coming years, driven by domestic demand and easing of supply-side bottlenecks.
The Indian government has been focusing on boosting infrastructure investment in recent years. This has helped to boost economic growth and create jobs. However, the government's high level of investment has also contributed to the rising budget deficit.
The government's decision to curb its investment spending could have a mixed impact on the economy. On the one hand, it could help to reduce the budget deficit and make the economy more sustainable in the long term. On the other hand, it could also slow down economic growth in the short term.
Goldman Sachs is also a major investor in Indian government bonds and corporate debt. The firm's investment in India is driven by its long-term bullish view on the Indian economy. India is one of the fastest-growing major economies in the world, with a young and growing population. The country is also undergoing a rapid digital transformation.
It is important to note that Goldman Sachs' forecast is just that: a forecast. The actual outcome will depend on a number of factors, including the government's fiscal policies and the performance of the private sector.