MUMBAI – The first budget presented by Prime Minister Narendra Modi’s new government is expected to emphasize welfare spending, particularly targeting the rural economy and job creation, according to a note from economists at Goldman Sachs on Monday.
Scheduled for presentation on July 23, the budget proposal for the financial year ending March 2025 will aim to adhere to the fiscal deficit target of 5.1% of GDP set in the interim budget. Goldman Sachs anticipates that the government will make a significant statement regarding its long-term economic policy.
“We expect a focus on job creation through labor-intensive manufacturing, credit for micro, small, and medium enterprises, and continued emphasis on services exports by expanding global capability centers and enhancing the domestic food supply chain,” stated Shantanu Sengupta, chief India economist at Goldman Sachs.
Despite failing to secure a majority on its own in the recent national elections, Modi’s Bharatiya Janata Party (BJP) returned to power with the support of allies. Post-election surveys highlighted unemployment and inflation as major concerns among voters, particularly in rural areas.
The Indian economy is projected to grow at a robust rate of 7.2% this year, but job creation has not kept pace. Citi’s chief India economist, Samiran Chakraborty, noted last week that even with 7% GDP growth, the economy might not generate enough jobs to meet the demand over the next decade. He estimated that growth at this rate would create 8 to 9 million jobs per year, falling short of the 11 to 12 million needed.
Goldman Sachs expects the budget to support labor-intensive manufacturing through fiscal incentives across sectors such as toys, textiles, apparel, and commercial aircraft manufacturing.
A Citi report suggested that the government might extend its flagship production-linked incentive scheme, focusing on increasing domestic value addition and setting explicit employment targets. The report noted that nearly two-thirds of manufacturing jobs are in low-skilled, labor-intensive sectors.
Additionally, Goldman Sachs predicts a focus on improving agricultural infrastructure and providing incentives to boost domestic production of key crops. This strategy aims to address high food inflation, which has remained close to 8% for several months.
