Fiscal deficit reduction not based on govt spending cuts in Budget 2013 bad for economy: Goldman Sachs
The investment bank, therefore, is not optimistic about the Government's ability to meet fiscal deficit target set at 4.8 per cent of GDP for FY14, and sees its touching 5 per cent on a possible fall in the revenue mop-up side.
"Given the Budget proposals, the fiscal deficit may be 5 per cent against the projected 4.8 per cent next fiscal.
Thus, the net borrowing requirement (Rs 4.88 trillion according to the Budget target) may be higher than budgeted," Goldman Sachs said in a report.
The brokerage said the Budget could have a short-term negative impact on equities, bonds and the rupee as no new reform measures have been announced by the Finance Minister.
The report, however, noted that fiscal trajectory has changed for the better over the past months due to front-loading of consolidation and the Government's debt ratio remains on a declining path.
On expenditure front, it said the Government has budgeted for a significant increase in expenditure to the tune of 16 per cent with a rise in non-subsidy current spending.
"While subsidies have been reduced significantly, there can be some upside to them, especially to food subsidy bill if the Food Security Bill is passed and implemented."
In terms of spending priorities, Goldman Sachs said there is a significant increase in rural, agricultural,
infrastructure, and social spending,
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