Goldman Sachs predicts Indian government will curb investments
Goldman Sachs forecasts a decrease in the Indian government's investment spending in the coming years as it works to reduce its budget deficit. Prime Minister Narendra Modi's administration aims to slash the fiscal gap by around 1.5 percentage points over the next two years. This suggests that the recent rapid growth in capital expenditure won't be sustainable, per Goldman economists Santanu Sengupta, Arjun Varma, and Andrew Tilton.
Private sector poised to fill investment gap
As the Indian government pulls back on investment spending, the private sector is expected to step up and fill the gap. The private sector makes up about 75% of investment in the economy, but its pace has slowed over the past decade due to factors like a sluggish property market, tighter credit conditions, and falling savings. However, with companies looking to diversify beyond China's manufacturing hubs and Make in India initiative promoting local production, private sector investment could bounce back.
Debt reduction and regulatory support boosting corporate capex cycle
Indian companies have cut their debt levels, and banks have enough capital to offer new loans for business expansion. The country's regulators have also been quick to grant clearances, which could help revive the corporate capital expenditure (capex) cycle. The federal government has set aside a record Rs. 10 trillion for investment in the fiscal year through March 2024 and is dedicated to reducing its budget deficit from 5.9% this year to 4.5% of GDP in 2025-26.
Stronger private sector demand expected in coming years
Private sector demand in India's economy has grown stronger following the pandemic, with credit card spending hitting all-time highs and banks doubling their retail loan portfolios since 2019. Goldman Sachs economists predict that private investment activity will increase in the coming years, driven mainly by domestic demand and the easing of supply-side bottlenecks.
