What Goldman Sachs expects in terms of India's growth, reforms in FY20

With the Bharatiya Janata Party-led (BJP) National Democratic Alliance government returning to power with a big majority, the focus now shifts to the next structural reforms expected to be taken up by the government. Prachi Mishra, chief India economist, Goldman Sachs in an interview with CNBC-TV18 shared her broad expectations in terms of reforms from the government.

Referring to their report she said they have explored potential scenarios around the implementation of reforms. She said, first they have a status quo scenario with 7-7.5 percent growth on average, which is exactly the same as what was there over the last five years. Then they have accelerated reform scenario where they see growth rising to 10 percent on an average over the next five years, said Mishra.

“The accelerated reform scenario assumes major reforms in four broad areas – land and within that transparency in land acquisition, along with accelerated digitisation of land records. The second reform is labour, where there would be enabling a regulatory framework for labour. Third would be privatisation, especially in areas of banking and agriculture. Fourth would be an export promotion,” she said.

Mishra added that this accelerated reform scenario assumes two things – first is a stable and strong government, which we have given the election verdict and second is a clear strategy and will to implement reforms. This is what both the domestic and international investors will look out for in the next several months, said Mishra.

She is of the view that export growth in India has slowed and that needs to be raised and if that happens, it would have implications for macros as well as equities.

When asked if they expect a fiscal expansion going forward, she said it would appropriate to wait for the Budget because the interim budget kept the fiscal deficit for the Central Government flat at 3.4 percent of GDP relative to 3.36 percent of GDP for FY19. The Interim Budget tried to strike a very fine balance between populist spending and fiscal prudence, she added.

The Budget will tell us what the FY19 outturn is going to look like and then what the FY20 Budget targets are, she said.

Their growth forecast for FY19 is 7 percent, and they expect growth to pick up over the course of the year to 7.4 percent for FY20, which is based on four assumptions, she said. The assumptions are a favourable global environment, in particular, oil, which is expected to be lower in FY20 versus FY19.

On the domestic side the three assumptions are building of confidence and sentiment, some easing of infrastructure bottlenecks and three losings of financial condition, she added.