Fears Over India's Fiscal Risk 'Overblown', Says Goldman Sachs
Santanu added that cuts across income tax and GST rates will serve as a boon for the consumption sector.
Concerns brewing over India's fiscal position may be exaggerated, and the market fears might have been "blown out of proportion", according to Goldman Sachs' Chief India Economist Santanu Sengupta.
Sengupta argued that lower capex and a healthy farm cycle are set to boost consumption even as government spending slows. Speaking to NDTV Profit, Santanu said the government's decision to cut income tax, coupled with GST rationalisation, will shave off around 30-35 basis points off GDP in revenue.
"We think the worries on the fiscal front are overdone," he said. "The government will stick to fiscal consolidation, but that means capex could take a hit.”
Goldman Sachs expects India's fiscal deficit to remain at the targeted 4.4% of GDP in the fiscal 2025-26, with cuts in capex and some other expenditures likely.
“From the markets’ perspective, fiscal risks have risen. But the risk of higher issuances is overdone,” he said.
Santanu added that cuts across income tax and GST rates will serve as a boon for the consumption sector.
This comes after the government, on Sept. 3, announced sweeping cuts to GST, bringing down the cost of most daily consumer goods. Santanu believes this will play a key role in boosting consumption in the country.
“This cycle is positive for consumption. We strongly favour the mass consumption category," he said.
The Goldman Sachs economist added that India's fiscal outlook will be helped by a healthy and organic agriculture cycle. "We have a very organic growth cycle on the agri front," he noted.
Santanu further said that while government capex may slow, he expects the private capex to come to the fore and lead the charge going forward.
"Heading into next year, we think private capex will have to come in a bigger way. The main heavy lifting in terms of capex going forward will have to come from the private sector," he said.
