India’s government will probably scale back on its investment spending in the coming years as it curbs its budget deficit, said Goldman Sachs Group Inc., giving the private sector scope to pick up the slack.
With the government of Prime Minister Narendra Modi planning to reduce the fiscal shortfall by about 1.5 percentage points over the next two years, the rapid pace in capital expenditure growth in the past few years “cannot be sustained going forward," Goldman’s economists Santanu Sengupta, Arjun Varma and Andrew Tilton wrote in a note Monday.
Investment has been a strong driver of India’s economy, contributing 3 percentage points to real gross domestic product growth of 7% annually from 2004 to 2012, the economists estimated.
While companies and households make up about 75% of investment in the economy, their pace has weakened over the past decade, mainly due to slower growth in the property market, tighter credit conditions and falling savings. Public investment in capital projects picked up over the period, though, helping to offset some of the slump.
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