The second quarter (Q2FY24) GDP number could surprise on the upside, going by the momentum of economy activity and a few early data points/ early indicators which have come in, said Reserve Bank of India Governor Shaktikanta Das.

The RBI has projected real GDP growth for Q2FY24 at 6.5 per cent.

The growth momentum in India continues to be strong, emphasised Das at a BFSI Summit.

“Looking at the momentum of economy activity and a few early data points/ early indicators which have come in, we do expect that the second quarter GDP number in all probability will surprise everyone on the upside,” the Governor said.

Evolving geopolitics

Das observed that the biggest challenge for every country is the evolving geopolitics and its fallout on financial markets and global growth.

“New flash points are developing, new geopolitical conflict points are developing….geopolitical uncertainty is the biggest risk to global growth.

“But so far as India is concerned, even with geopolitical risks, it is better placed compared to other countries to deal with such potentially risky situations,” the Governor said.

Index inclusion, double-edged sword

Referring to JP Morgan’s plan to include India in its Government Bond Index-Emerging Markets (GBI-EM) index from June 2024, Das underscored that this is a vote of confidence on the Indian economy and its financial markets.

Market experts estimate that the inclusion will attract investments aggregating about $25 billion into Indian government bonds by March 2025.

While inflows are expected, there could also be outflows, cautioned Das, adding, inclusion in the Index is a double-edged sword.

“...There are quiet a number of passive investors who are mainly influenced by a country’s weightage in the index. So, the reverse can also happen. So, when weightage goes down, passive funds will immediately tend to move out or if some other global development happens, there can be outflow of funds.

“And in this regard, I would like to mention that RBI has a track record, over the years, and especially in the recent period, of handling large scale inflows and large scale outflows,” Das said.