Budget And Capex: ‘Very Difficult’ To Allocate More In This Fiscal, Says Goldman Sachs

India's fiscal consolidation efforts make it “very difficult” to allocate more funds for capital expenditure in this fiscal, according to Goldman Sachs' India Economist Santanu Sengupta.

Over the past three to four years, the government has consistently reduced the fiscal deficit while increasing capex, leading to trade-offs in other areas. "As we consolidate the deficit further, it is very difficult to allocate more for capex," Sengupta said, while speaking to NDTV Profit.

However, he credited the government for maintaining capex at 3.1% of GDP, even as fiscal constraints tighten. He pointed out that some of the burden has now shifted to states, while private sector investment is expected to pick up once global uncertainties ease. However, in the current environment of fiscal consolidation, "continuing capex materially is challenging."

The government has remained “unwavering” in its commitment to fiscal consolidation, Sengupta noted. The focus on bringing down the debt-to-GDP ratio is crucial for long-term economic stability.

The government has given room for spending boost in times of economic shocks, he said. In that mix, the budget has done a good job—ensuring macro resilience while targeting support where it is most needed, he explained.

On the taxation front, Sengupta highlighted that the Rs 1 lakh crore tax relief is “very targeted”, primarily benefiting the urban taxpaying population. While lower-income households might use this relief to deleverage existing debt, and higher income individuals may choose to save, the middle group is expected to spend it on discretionary and services consumption.

"We are less certain if this will have a significant impact on staples consumption," he noted. He also emphasised that part of the tax relief will be directed toward savings and debt repayment, which, in turn, could help set the stage for another credit cycle later this year.