In a note released on Monday, economists at Goldman Sachs predict that Prime Minister Narendra Modi's new government will prioritize welfare spending in its first budget, with a particular emphasis on boosting the rural economy and creating jobs.
The budget proposal for the fiscal year ending March 2025 is set to be presented on July 23, according to the government's announcement over the weekend. While the government is expected to maintain its fiscal deficit target of 5.1% of GDP as set in the interim budget, Goldman Sachs economists anticipate a broader statement outlining long-term economic policy goals.
Santanu Sengupta, chief India economist at Goldman Sachs, highlighted potential strategies for job creation, such as promoting labor-intensive manufacturing, providing credit to micro, small, and medium enterprises, expanding global capability centers for services exports, and strengthening the domestic food supply chain.
Despite India's robust economic growth forecast of 7.2% this year, concerns persist over the lack of job opportunities. Citi's chief India economist, Samiran Chakraborty, noted that even with 7% GDP growth, the country may fall short of the 11-12 million jobs needed annually, estimating that current growth rates will generate 8-9 million jobs per year.
Goldman Sachs anticipates the budget to incentivize labor-intensive manufacturing in sectors like toys, textiles, apparel, and commercial aircraft production. Meanwhile, Citi suggests expanding the production-linked incentive scheme to encourage more domestic value addition and set explicit employment targets.
Furthermore, the government is expected to focus on enhancing agricultural infrastructure and increasing domestic production of essential crops to address high food inflation, which has hovered around 8% for several months.
Analysis:
Prime Minister Modi's upcoming budget reflects a strategic shift towards bolstering the rural economy and addressing the pressing issue of job creation in India. By prioritizing labor-intensive manufacturing, incentivizing domestic production, and enhancing agricultural infrastructure, the government aims to stimulate economic growth and alleviate unemployment concerns. These proposed measures have the potential to drive sustainable development, foster innovation, and improve livelihoods for millions of Indians. As investors, it is crucial to monitor these policy changes and leverage opportunities that may arise from the government's focus on key sectors and economic reforms.