Good News for Indian Economy

Goldman Sachs raises India’s GDP forecast by 10 bps to 6.7%, citing ongoing infrastructure investments supported by a large RBI dividend…reports Asian Lite News

Leading global financial firm Goldman Sachs has revised its forecast for India’s GDP growth by 10 basis points to 6.7 per cent as it expects the government’s heavy investments in big-ticket infrastructure projects to continue with the huge dividend coming in from the RBI.

“Going forward, we expect investment growth momentum to sustain with extra fiscal space for infrastructure spending given a higher-than-expected dividend transfer by the RBI. As a result, we recently revised our growth forecasts for 2024 slightly higher by 10 bps to 6.7 per cent,” Andrew Tilton, head of emerging markets economic research at Goldman Sachs said in a note.

“In India, growth momentum remains strong, and while we think core inflation will bottom out in April-June, we expect it to be around 4.0 – 4.5 per cent in July-December,”  the financial company said.

However, the RBI’s monetary policy committee members have recently sounded cautious on sticky food inflation and may want to see monsoons progress and the summer crop sowing to assess the food inflation outlook in July-December, before pivoting towards monetary policy easing, the report said.

“Taking into account these developments, we push our RBI rate cut call back by one quarter to October-December, with the first cut most likely in the December 2024 meeting,” the report added.

The report also came on a day when the IMD confirmed its forecast of above-average monsoon rains this year which are expected to spur production in the agricultural sector that was hit by erratic weather last year. 

Meanwhile, global rating agency Fitch views the larger-than-expected Reserve Bank of India (RBI) dividend of Rs 2.1 lakh crore to the government, announced last week, as positive for India’s sovereign rating fundamentals.

“The larger-than-expected RBI dividend to the government should help to ensure the 5.1 per cent of GDP deficit target for the fiscal year ending March 2025 will be met and could be used to lower the deficit beyond the current target,” Fitch Ratings said in a report on Monday.

Goldman Sachs.(photo:Facebook)

The new government’s budget following the release of election results in June is likely to be presented in July and it will determine how the dividend will be used.

The government has signalled its aim to narrow the deficit gradually to 4.5 per cent of GDP by FY26. Sustained deficit reduction, particularly if underpinned by durable revenue-raising reforms, would be positive for India’s sovereign rating fundamentals over the medium term, Fitch ratings said.

The RBI announced a record-high dividend transfer to the government equivalent to 0.6 per cent of GDP Rs 2.1 lakh crore from its operations in FY24. This is above the 0.3 per cent of GDP expected in the FY25 budget from February, so it will aid the authorities in meeting near-term deficit reduction goals. An important driver of higher RBI profits appears to be higher interest revenue on foreign assets, though the Central bank has not yet provided a detailed breakdown.

In its post-election budget, the new government has two alternatives. First, the government could opt to keep the current deficit target for FY25, and the windfall could allow the authorities to further boost spending on infrastructure, or to offset upside spending surprises or lower-than-budgeted revenue, for example from divestment. Alternatively, all or part of the windfall could be saved, pushing the deficit to below 5.1 per cent of GDP. The government’s choice could give greater clarity around its medium-term fiscal priorities, the Fitch report stated.

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