EU Budget 2024: Social spending or capex? Goldman Sachs shares key sector expectations

Contrary to growing investor expectations that India’s full-year budget for fiscal year 2025 will ease the path of fiscal consolidation and shift investment spending towards social spending, Goldman Sachs said on Monday it believes fiscal space to stimulate the economy is limited due to high public debt.

The investment bank said India’s infrastructure upgrades have long-term positive growth spillovers that policymakers may not want to let go of. Goldman Sachs said the budget will go beyond fiscal numbers and will likely include a broad statement on the government’s long-term economic policy through 2047 (100 years of India’s independence).

The Budget will be presented by Finance Minister Nirmala Sitharaman on July 23.

“We see a focus on job creation through labour-intensive manufacturing, credit to SMEs, continued focus on services exports through GCC expansion, and emphasis on domestic food supply chain and inventory management to control price volatility. The budget is also likely to set a path for the future of public finances in India, including: a) a roadmap to sustainable public debt; and b) green finance: the role of public finances in balancing India’s energy security with transformational needs,” Goldman Sachs said.

In May, the RBI gave the government 0.3 per cent of GDP in additional dividend. Goldman Sachs said that if the higher-than-scheduled dividend from the RBI is used to increase spending, capital expenditure growth could rise to 21 per cent year-on-year (from 17 per cent year-on-year BE), while current expenditure growth could rise to 5 per cent year-on-year if the government maintains its fiscal deficit target of 5.1 per cent of GDP in fiscal 2025.

On the other hand, if the additional dividend is allocated to social programs, subsidies, cash transfers, or tax cuts, the largest increase is estimated to come from subsidies and social spending and the smallest from tax cuts.

Sector expectations
In manufacturing, Goldman Sachs sees a clear push toward labor-intensive production through fiscal incentives: a global production center for toys, textiles, clothing and commercial airplanes.

In the housing sector, it was noted that 26 million houses have been built under the Rural Housing Programme since 2016. The budget focuses on slum redevelopment in large cities, reducing regulatory costs (registration), regulatory reforms to allow automatic approvals, and ensuring clean drinking water for rural and urban households.

In the services sector, expansion of Global Capability Centres (GCC), Global Technology Centres (GTC) and Global Engineering Centres (GEC) is expected. Focus may also be on tourism to create employment, it said.

In the agricultural sector, infrastructure projects such as cold stores, the expansion of a more efficient irrigation network, sorting units and food processing are envisaged.

He sees incentives in the budget to increase domestic production of edible oil, pulses, vegetables and fruits, expansion of dairy cooperatives, fisheries. He also sees reduction in the cost of machinery, increase in the availability of seeds, allocation to the fund for stabilization of prices of vegetables, pulses, etc.

In the infrastructure sector, Goldman Sachs sees continued emphasis on infrastructure creation through a larger rail network. The focus is likely to be on East and Northeast India. It expects to add more than 5,000 km of new rail tracks every year for the next few years.

In the insurance sector, GS sees a policy towards insurance for unorganised workers. In fiscal 2022, around Rs 10,900 crore in premiums were collected and Rs 16,700 crore was paid in claims under government insurance schemes. The investment bank sees insurance schemes for taxi, truck and three-wheeler drivers.