Centre may peg FY25 fiscal deficit at 5.3% in interim budget: Goldman Sachs

Interim Budget 2024: The Centre will keep a focus on increasing the capital expenditure but it will most likely be at a slower pace than earlier, says Goldman Sachs

In the upcoming interim budget, the Centre is likely to follow the fiscal consolidation path and may announce a fiscal deficit target of 5.3 per cent of the gross domestic product (GDP) for 2024-25 (FY25), Goldman Sachs said in a report titled "Asia in Focus" released on Friday. 

It said that in the current year, the Centre will meet its fiscal deficit target of 5.9 per cent of the GDP as the receipts are likely to be higher than the estimates by 0.2 per cent of the GDP. 

"In the current fiscal year FY24, robust tax collection, mainly driven by direct taxes, has given the government some fiscal space to carry out additional spending and yet meet the fiscal deficit target of 5.9 per cent of GDP," it said. 

If spending remains low, the fiscal deficit may even be 5.8 per cent. 

In FY25, according to Goldman Sachs, the Centre will keep a focus on increasing the capital expenditure, but it will most likely be at a slower pace than earlier. 

"We expect the focus on capex to continue, but at a slower pace (we expect 10 per cent year-on-year growth in capex) than what has been seen in the last few years (over 30 per cent CAGR between FY21 to FY24 BE)," it said. 

On the income side, the agency said that the income taxes and corporate tax are expected to grow by 15 per cent in FY25, under indirect taxes. Goods and services tax (GST) is expected to record a jump of 11 per cent. 

It also added that the Reserve Bank of India (RBI) is expected to emerge as the net seller of government bonds in FY25 given the demand from foreign institutional investors and domestic investors. 

Moreover, the RBI may go for two repo rate cuts in FY25. Both of these may be of 25 basis points each, with one between July and September, and another between October and December.