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MUMBAI (Reuters) – The first budget of Prime Minister Narendra Modi’s new government is likely to lean toward but not shift toward welfare spending, with a focus on the rural economy and job creation, Goldman Sachs economists said in a note on Monday.
The government said over the weekend that its budget proposals for the fiscal year ending in March 2025 will be submitted on July 23.
Goldman Sachs economists expect the government to stick to the fiscal deficit target of 5.1% of GDP set in the interim budget, but said it may make an “overarching statement” on long-term economic policy.
Santanu Sengupta, India’s chief economist, said: “We see a continued focus on services through labour-intensive manufacturing, credit to micro, small and medium enterprises, and expansion of global capability centers Exports and a boost to the domestic food supply chain to create jobs, and a boost to the domestic food supply chain.
Modi’s Bharatiya Janata Party failed to win a majority on its own in this year’s national elections and is returning to power with the help of allies. Post-poll surveys show that unemployment and inflation are major concerns among voters, especially those outside urban areas.
Although India’s economy is expected to grow at a blistering 7.2% this year, job creation lags behind.
Samiran Chakraborty, chief India economist at Citi, said in a report last week that “even GDP growth of 7% may not be able to meet employment needs over the next decade.” He added that close to Growth of 7% would create 8 million to 9 million jobs per year, below the 11 million to 12 million needed.
Goldman Sachs expects the budget to boost labor-intensive manufacturing through fiscal incentives for industries such as toys, textiles and apparel manufacturing, and commercial aircraft manufacturing.
Citigroup said in a note that the government could consider expanding its flagship production-linked incentive scheme to focus on “more domestic value addition and clear employment targets”.
Citi said nearly two-thirds of manufacturing jobs are in low-skilled, labor-intensive industries, but did not specify whether those announcements would be made in the budget.
Goldman Sachs also expects the government to focus on agricultural infrastructure and incentives to boost domestic production of key crops as a way to combat high food inflation, which has been close to 8% for years.
