According to Goldman Sachs, in the current fiscal year, the world’s fastest-growing major economy is set to accelerate.

The investment bank said in a note that accelerating from 7.6 percent in the previous year, India’s economy is set to grow by 7.9 percent on-year between April 2016 and March 2017.

With the Chinese government aiming for growth of 6.5 to 7 percent, that growth figure, would put India well above China, if achieved. China is expected to expand at a more modest pace this year.

The following factors that are expected to support India’s growth in the coming months were highlighted by Goldman.

A better monsoon

Much of India’s agrarian economy and rural incomes and consumption is affected by the level of rainfall since there is weak irrigation infrastructure. The consumer price index is impacted when food prices rise due to lack of rain.

Goldman said that 0.6 to 0.9 percentage points to overall gross domestic product (GDP) growth in fiscal 2017 through an increase in agriculture GDP growth and rural incomes could be added as India’s meteorological department predicted rainfall to be 6 percent above normal this year.

Wage hikes for civil servants

According to Reuters, the Indian government will have shell out an additional $17 billion in fiscal 2017 due to a more than 14 percent increase in salaries and pensions for about 10 million government employees and pensioners which was approved by the Indian government in late June.

A GDP growth of a 0.30 percentage point could happen and the purchasing power of consumers could be added by this one-off move, Goldman said.

Favorable policy mix

India’s fiscal and monetary policy mix provides a “conducive environment for growth” and is also favorable. In April, the Reserve Bank of India (RBI) cut the repo rate by 0.25 percentage points to 6.50 percent, on the monetary front.

An increase in demand for credit from the relatively unlevered household sector could result from the policy rate cuts, Goldman said. From an average of 15.7 percent in the 2015-2016 fiscal year, retail loan growth has increased to 19 percent on-year in the first quarter of fiscal 2017, it said.

India allocated 359.8 billion rupees for agriculture and farmers’ welfare and 878 billion rupees ($13.1 billion) for the rural sector in its federal 2016-2017 budget. Public capital expenditure could be supported by the focus on rural spending in this year’s budget, Goldman said.

Progress on reforms

Even though recent developments in passing key reforms have been encouraging, it had been one of the sticking points of Prime Minister Narendra Modi’s government since it came into power two years ago.

Set to simplify the country’s current taxation system, the Indian parliament approved the much anticipated tax overhaul reform earlier this month.

Apart from the setting up of a monetary policy committee, which is currently underway and the bankruptcy code which is set to make it easier to recover debts from failed business, this was one of four key reforms Goldman expected to pass in 2016.

A faster pace of rate hikes from the U.S> Federal Reserve, renewed concerns over China and worsening of India’s non-performing loans situation were some of the key risks that Goldman also highlighted which could potentially derail India’s upbeat economic trajectory.

(Adapted from CNBC)

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