Jobs, rural India likely to be focus of new Modi government's first budget, says Goldman Sachs

MUMBAI (Reuters) -The first budget by Prime Minister Narendra Modi's new government may tilt towards, but not pivot to welfare spending, with a focus on rural economy and job creation, economists at Goldman Sachs said in a note on Monday.

The budget proposal for the financial year ending March 2025 will be presented on July 23, the government said over the weekend.

Goldman economists expect the government to stick to its fiscal deficit target of 5.1% of GDP set in the interim budget but said it will likely make an "overarching statement" about long-term economic policy.

"We see an emphasis on job creation through labor-intensive manufacturing, credit for micro, small and medium enterprises, continued focus on services exports by expanding global capability centres, and a thrust on domestic food supply chain," Santanu Sengupta, chief India economist at the Wall Street bank wrote.

Modi's Bharatiya Janata Party failed to win a majority on its own in national elections this year and returned to power with the help of allies. Post-poll surveys showed that unemployment and inflation were key concerns among voters, particularly outside of urban areas.

While the Indian economy is seen growing at a fast clip of 7.2% this year, job creation has lagged.

"Even 7% GDP growth might not be able to fulfill the job requirement over the next decade," Citi's chief India economist Samiran Chakraborty said in a note last week, adding that growth of close to 7% will generate 8 million to 9 million jobs per year, short of the 11 million to 12 million needed.

The federal labour department, on Monday, countered this to say its estimates suggest an average of over 20 million employment opportunities per year were created between 2017-18 to 2021-22.

Goldman expects the budget to push labour-intensive manufacturing through fiscal incentives across sectors like toys, textiles and apparel manufacturing, along with commercial aircraft manufacturing.

Citi, in a report, said the government could consider extending its flagship production-linked incentive scheme with a focus on "more domestic value addition and explicit employment targets."

Almost two-thirds of manufacturing jobs are in low-skilled labour-intensive sectors, Citi said, without specifying whether these announcements would be made in the budget.

Goldman also expects a focus on agricultural infrastructure and incentives to increase domestic production of key crops as a way to target high food inflation, which has been running close to 8% for many months.

(Reporting by Ira Dugal; Editing by Nivedita Bhattacharjee)