It will take three years for the high fiscal deficit, which was one the reasons why foreign rating agencies threatened to downgrade the country's sovereign rating to junk, down to 3 percent, the brokerage added.
Foreign brokerage Goldman Sachs today said it expects new Finance Minister Arun Jaitley to peg the fiscal deficit target for FY15 at 4.3 percent, up from the 4.1 percent stated by his predecessor P Chidambaram.
However, the Wall Street brokerage noted that 4.3 percent will be well below its earlier assessment of 4.8 percent.
"We expect a fiscal deficit target of 4.3 percent of GDP for FY15, slightly higher than the 4.1 percent presented in the interim budget by the previous government, but lower than our previous estimate of 4.8 percent," it said in a statement.
The previous government's expectation on tax revenue growth of 21 percent was "too optimistic," it said.
It will take three years for the high fiscal deficit, which was one the reasons why foreign rating agencies threatened to downgrade the country's sovereign rating to junk, down to 3 percent, the brokerage added.
In order to achieve the fiscal consolidation in the medium term, the government will return to fiscal rules, tax consumption instead of production, broaden the income tax base by creating a new Internal Revenue Service, and reduce fertiliser subsidies, it said.
Goldman said that the government will focus on shifting spending from consumption to capital expenditure in its Budget.
"To boost growth, we think the government would need to focus more on capital spending, especially infrastructure, relative to subsidies. We therefore expect an increase in capex relative to the interim budget," it said, adding that fuel subsidy will come down to 0.6 percent of GDP in FY15 from the 0.8 percent in the year ago.
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