Goldman Sachs thinks the Indian Government will continue on their fiscal consolidation path and continue to prioritise capital expenditure rather than welfare spending contrary to popular expectations after the coalition government came in June after the election.

What Happened: In its Union budget preview, the research firm pushes against both views of relaxation in fiscal consolidation and pivots towards welfare spending from capex. It reasoned that there is limited fiscal space to stimulate the economy due to high public debt and India's infrastructure upgrades have created long-term positive growth spillovers which the rule-makers won't like to give up. 

Finance Minister Nirmala Sitharaman will present the Union budget for FY25 on July 23.

Reports said in June that the Indian government will be looking to spur the consumption sector in the economy by providing tax relief to the middle class in the upcoming budget. The government is reportedly looking to provide relief to the income group who earn between ₹5 lakh and ₹15 lakh annually.

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The brokerage expects the central government to stick to the fiscal deficit target of 5.1% of GDP for FY25 and expects a further consolidation of the deficit to 4.5% of GDP by FY26. Goldman Sachs believes the higher-than-expected RBI dividend will make sure expenditure towards capex will remain intact even if the government look to allocate funds towards welfare spending. 

Measures for rural areas, micro, small and medium enterprises (MSME), manufacturing, housing, services and social security are likely to be implemented according to the brokerage firm. 

Goldman Sachs listed investments in railway network through infrastructure is likely though fiscal allocation may be shifted off the balance sheet. This includes adding 5000+ railway networks every year for the next few years. 

It also said structural reforms like land and labour market reforms and market-linked pricing for farm produce in difficult to implement in the upcoming budget. 

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