Sell Side Views On The Indian Budget

India's budget is delivered Feb 1, below is a summary of some sell-side views.

• GOLDMAN SACHS: The government of India will present its fiscal year 2023-24 (FY24) budget on February 1, 2023. We expect the government to meet the FY23 fiscal deficit target of 6.4% of GDP, only after some spending cuts, given incremental subsidy spending in the fiscal year following the commodity shock. We expect the government to consolidate the fiscal deficit to 5.9% of GDP in FY24, fully funded by a reduction in subsidy spending, while maintaining capex and other current spending. Government borrowing in FY24 is likely to remain elevated, which might require the RBI to re-start OMO purchases in the second half of FY24 with domestic liquidity constraints abating.
• J.P. Morgan: Central government has laid out a fiscal path that envisages the Central deficit being brought down by ~2% of GDP to 4.5% of GDP by 2025-26 from 6.4% of GDP this year. Given prospects of slowing global and domestic growth in 2023, it’s understandable that the Center would not want to front-load the 2% of GDP consolidation. We, therefore, expect the Center to target consolidation of ~0.5 % of GDP, aiming at a fiscal deficit close to 5.9% of GDP in FY24.
• Morgan Stanley: We expect the fiscal deficit to be 5.9% of GDP in F2024e from 6.4% of GDP in F2023e. Consolidation will be led by a reduction in subsidy related expenditure, which will ensure that the government can continue with its focus on capital spending amid expectations of a steady trend in tax revenues as a percentage of GDP. We build in a gradual fiscal consolidation path because we believe that continued focus on capex is beneficial not only from a cyclical perspective but also for the medium term growth potential of the economy.
• ANZ: We think the government will stick to its FY23 fiscal deficit target of 6.4% of GDP. An outsized subsidy bill is expected to be cushioned by a tax windfall, largely due to higher-than-expected nominal GDP growth. Although in nominal terms the fiscal deficit will be higher than was budgeted, but it will likely be comfortably funded by non-market borrowing sources. For FY24, we expect the fiscal deficit to ease to 5.9% of GDP. Revenue spending pressures will likely ease, but the thrust to capex is expected to remain steady. Lower nominal GDP growth will however moderate the growth in tax collections. Despite fiscal consolidation, a large repayment burden is expected to keep gross market borrowings of the government elevated.