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Business News/ Economy / Now Goldman Sachs too sees India’s economy growing at a faster clip

Now Goldman Sachs too sees India’s economy growing at a faster clip

Goldman Sachs is the latest to raise its GDP forecast for India, following a pattern of increasing optimism among global investment firms about the country’s growth

Moody's, Morgan Stanley and S&P Global, too, have recently raised their forecast for India's economic growth. (AFP)Premium
Moody's, Morgan Stanley and S&P Global, too, have recently raised their forecast for India's economic growth. (AFP)

NEW DELHI:Goldman Sachs joined a clutch of investment firms that are seeing higher potential for India’s economic growth, encouraged by a strong spell of investment as well as manufacturing activity in the country.

Goldman Sachs on Thursday raised its forecast for India's economic growth in calendar 2024 to 6.6%, up 10 basis points (bp), on the back of higher investment spending and activity data. 

Rating agency Moody's earlier this month raised its forecast for India's GDP growth in 2024 to 6.8% from 6.1%, reflecting both global and domestic optimism in the country's economy on the back of robust manufacturing activity and infrastructure spending. Over the past two days, Morgan Stanley and S&P Global raised their forecast for India’s economic growth in FY25.

"Given the stronger-than-expected print and upward revisions to the earlier series by the statistical office, we raised our CY24 growth forecast forecast by 10bp to 6.6% yoy," Goldman Sachs Economic Research said in a report. 

High frequency activity data remains strong, with our proprietary indices tracking a rebound in consumption growth at 7.9% yoy in Q1 CY24 (vs. +3.5% yoy in Q4 CY23), but slower investment growth at 2.3% yoy (vs. +10.6% yoy in Q4 CY23) as the government has front-loaded capex," it added.

Also read: Indian economy keeps its shine, with some red flags

India’s economy soared ahead in the December quarter (the third quarter of FY24) with a surprise growth of 8.4%, belying fears of tempering as the manufacturing, electricity and construction sectors put up a robust show.

The Reserve Bank of India’s GDP growth estimate for FY24 is 7%, while the International Monetary Fund forecasts 6.7%.

The statistics ministry last month raised its GDP growth estimate for FY24 to 7.6% in its second revised estimate, up from 7.3% in its first advance forecast, amid strong investment growth in plant and machinery and robust manufacturing growth, despite consumption and government spending growing slower than previously estimated.

Core sector growth in February was the fastest in three months, and manufacturing activity at a five-month high.

Interestingly, on 1 February, the Union government in its interim budget gave a boost to central capital expenditure by raising the allocation on developing infrastructure projects to 11.11 trillion for FY25, marking an 11.1% jump from the previous year’s capex of 10 trillion.

In its report, India: RBI preview: Food concern, Core comfort, Goldman Sachs said it expects the Reserve Bank of India to keep the policy repo rate unchanged at 6.50% at its 5 April meeting, and retain its monetary policy stance of ‘withdrawal of accommodation’ as well as its commitment to its 4% headline inflation target.

"High-frequency data in Q1 CY24 shows a rebound in consumption activity, but softer investment activity as the government front-loaded capex in 2023. We forecast headline inflation at 5.2% in Q1 CY24, driven by high food inflation, even as core inflation has declined below the RBI’s target of 4%," Goldman Sachs said. 

"We expect the RBI to take comfort from declining core inflation, slightly soften its hawkish forward guidance, but remain cautious given upside risks to food inflation from weather shocks, and repricing of the Fed funds rate easing path," it added. 

According to the latest data, Consumer Price Index-based retail inflation was down by one basis point to 5.09% in February, compared with 5.1% in January, remaining within RBI's tolerance range of 2-6% for the sixth consecutive month. 

Though, prices of food and beverages continued to rise–above 7% for four months in a row–owing to a rise in prices of eggs, meat, fish and vegetables, prices of other primary categories such as clothing, footwear, housing and transport eased marginally.

"Banking system liquidity has eased with active interventions by the RBI, and government spending over the last month which has softened inter-bank rates, and short-term borrowing rates for bank and non-bank entities," Goldman Sachs said in its report.  

"In our view, when the RBI eventually starts the easing cycle, we expect them to run liquidity surpluses and let the inter-bank rate trade below the repo rate–we forecast one 25bp cut each in Q3 and Q4 CY24," it added.

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Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 28 Mar 2024, 07:54 PM IST
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