New Delhi: Goldman Sachs expects the Reserve Bank of India (RBI) to deliver one more rate reduction during the continued financial year, probably in December, citing benign inflation and the relief of food prices, a top economist at the US investment bank said. Inflation is expected to remain about 3% by year -end and in the early 2026 of about 4%, India chief economist Santanu Sengupta at Goldman Sachs, said in an interview. “With food inflation reduction and GST cuts that go through, RBI has room to facilitate further, despite moving guidance to neutral,” he said. To be sure, the RBI has so far delivered two rate cuts in FY26, a cut of 25 basis points in April and a cut of 50 BPS in June which lowered the Repo rate to 5.5%before holding steady on the August meeting. Sengupta also said that the economy of India is expected to expand at a steady rate of 6.5-7% in the medium term, supported by resilient consumption and tax reforms, but is shaded by external risks. “Recent policy changes, such as income tax cuts and GST rate reductions, have supported consumption, which offers a positive impulse,” he said. “On the other hand, external risks remain, especially tariff -related uncertainties,” he added. Investment -led may grow a stronger investment cycle, according to Sengupta, can increase India’s growth potential. As things stand now, the RBI FY26 growth linked to 6.5%, referring to the state-led capital spending and a preliminary rural recovery, even if predictors deviated: The Asian Development Bank cut its outlook to 6.5% on tariff and policy risks, while the IMF increased its forecast to 6.4%. “The most important increase (for the economic growth of India) is if the investment rate rises to previous peak levels, especially through private Capeex. If your investment rate returns to previous peak levels, it can increase the potential growth by 0.5 percentage points, and this is constant,” Sengupta said. “To the disadvantage, external wind, geopolitical risks and tariff -related uncertainties have the biggest challenges,” he added. The gross fixed capital formation, a proxy for investment, certainly delayed to 7.8% in the previous quarter, but still showed signs of strong growth, supported by a higher-year capital spending by the government. ‘Center’s Capex has reached its peak’ The spending of the central government has little room to rise further. “The highlight as part of GDP has already been reached in FY24, about 3.2%. With fiscal consolidation, there is little room to significantly increase this share,” Sengupta said. “On private capex, conditions on supply side look strong, corporate and bank balance states are healthy, but global uncertainty holds back fresh investments in India as well as elsewhere. Our estimates suggest that policy or tariff security can shave almost a percentage point of total investment growth,” he added. However, Sengupta hit a confident note on domestic demand. “Yes, we are optimistic. Income tax cuts were partly started, but they still supported the question. ‘ A strong harvest cycle increased the rural income, with real agricultural zones grown by more than 4%, ‘he said. “Add to this the GST cut, which directly lowers consumer prices and inflation, and you have a broad consumption lifting,” he added. GST -rate rationalization A major positive Sengupta has highlighted the importance of structural reforms, especially in taxes. “Moving a multi-clab to a two-lab structure (GST) is a major positive. Streamline processes such as repayments will make the ease of business … Stability in the tax regime will be valuable for businesses,” he added. According to Sengupta, the foreign debt position of India, “stability and policy space” provided. Services exports have risen to 10% of GDP, foreign exchange reserves are $ 700 billion, and external debt is one of the lowest in emerging markets, he said. Yet foreign portfolio inflows were careful. “The tariff regime of India looks high compared to peers,” he said. “But with clarity on trade issues and a stronger consumption, we expect inflow to return,” he added. States must adhere to credible fiscal roads on fiscal matters, Sengupta said that the issuance of the SDL (state development) has already weakened the yield curve, especially at the long end. While the center is likely to meet its fiscal scoring goal of 4.4%, states must also anchor themselves with credible fiscal roads, he said. “Greater market differentiation of the fiscal performance of states, reflected in distributions, would be a healthy reform,” he added. Looking ahead, Sengupta emphasizes the urgency to utilize India’s demographic advantage. “The participation of the workforce has improved, especially among women. The return from LFPR to peak levels can add almost 1 percentage point to growth. But the demographic window will not last forever – the next 20 years are critical,” he said. On fiscal consolidation, Sengupta added that with general government debt-to-GDP is essential at about 85%. “We expect the government to stick to the slide, with the aim of striving about 4% fiscal deficit by FY27. After already delivering income tax and GST cuts, there is little room for more without a windfall,” he added.
RBI can again reduce rates in December on the relief of inflation: Goldman Sachs’ Sengupta
