Goldman Sachs doesn’t expect Reforms in pre-poll Budget

‘Higher allocations for welfare and rural spends likely ahead of Lok Sabha race’

The Union Budget of 2023-24, India’s final full-year Budget before the Lok Sabha polls in 2024, is unlikely to see any major reforms and could see allocation hikes for welfare spending measures as well as capex along with cuts in defence expenditure, as witnessed in recent pre-election Budgets, Goldman Sachs said in a report on January 10, 2023. 

“Given the general elections scheduled to take place in 2024, we expect the government to increase rural and welfare spending as seen in pre-election Budgets… Rural employment and housing are likely to be in focus,” Goldman Sachs reckoned.

Based on an analysis of pre-poll Budgets over the last 15 years, Goldman Sachs noted that typically, there is an increase in capex allocation towards infrastructure, mainly roads and railways, and a cut in defence spending. “In the case of current expenditures, we have typically seen an increased allocation towards rural spending or welfare schemes (mainly in education and healthcare),” it said in a report on India’s fiscal outlook for 2023-24. 

In the 2018-19 Budget for instance, defence capital expenditure had been slashed from 36% of total capex averaged in the previous four years to 32% of total capex, while infrastructure’s capex share rose from 29% averaged in the previous four years to 40%, it pointed out. Welfare spending increased from 8% of current expenditure averaged between 2014-15 and 2017-18, to 19% of total current expenditure in 2018-19.

“This would be the final full-year budget under the current administration before the national elections in mid-2024, and comes at a time when the government is trying to weigh spending priorities, without compromising on fiscal prudence and the inflation target. We do not expect any significant reforms to be announced in this budget, but some measures to watch out for include: a) any details on incentives for ‘Make in India’, b) a roadmap on direct tax code implementation, and c) rationalization of subsidies, particularly fertilizers,” the report concluded.

While government borrowings are likely to remain elevated in 2023-24 as well, the firm expects the central government to consolidate its fiscal deficit to 5.9% of GDP in next year from 6.4% this year, thanks to a reduction in food and fertilizer subsidies along with buoyant tax revenues. Spending on subsidies as a share of GDP is expected to drop to 1.5% in 2023-24 from 2.1% estimated for this year.