Business Standard

Budget a test for govt, says Goldman Sachs

Says Budget could be positive for banks, capital goods and logistics, but negative for consumer goods

Press Trust of India  |  Mumbai 

Leading American brokerage Goldman Sachs has said the forthcoming Union will be keenly watched as a "test of the government's commitment" to fiscal responsibility.

"The will be keenly watched as a test of the government's commitment to fiscal responsibility, whether there is a credible plan for reducing the fiscal deficit and whether populist measures can be avoided before the 2014 general elections," the Wall Street firm said in a note.

From a stock market perspective, the report also says the could be positive for banks, capital goods and logistics, but negative for consumer goods.

It further said that while Finance Minister P Chidambaram is likely to announce a deficit target of 4.8 per cent for FY14, the credibility on how to achieve this target will be the key.

Chidambaram has already cut down on planned expenditure by up to 10 per cent and has publicly stated that he would bring fiscal deficit down to 5.3 per cent this financial year.

"We think the budget will focus on expenditure cuts, which have a better chance of succeeding, rather than optimistic revenue increases.

"In terms of financing the deficit, our analysis of demand for government bonds suggests that the Reserve Bank is likely to do fewer OMOs compared to the previous years, due to increasing demand from banks and mutual funds," Goldman Sachs India chief economist Tushar Poddar said in the report.

Explaining their rationale, the report prepared by Poddar said, the very high fiscal deficit is endangering macro stability and contributing in part to a high current account deficit. To ensure a stable macro environment, reducing the fiscal deficit is necessary, albeit not sufficient.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, February 20 2013. 00:31 IST