NEW DELHI: India’s real GDP growth will rise to 6.5% in 2024-25 from an estimated 6.2% in 2023-24, aided by the government’s pre-election spending in the first half of 2024 and private investment in the later half, global investment firm Goldman Sachs said in a report on Monday.
On a calendar year basis, India’s real GDP growth will likely moderate marginally to 6.3% in 2024 from an estimated 6.4% for 2023, it said.
“In 2024, we expect macro-economic resilience to continue in India amidst steady growth at 6.3% yoy,” it said. “The year will likely be a tale of two halves: Pre-elections, government spending will likely be the growth driver. Post-elections, we expect investment growth to re-accelerate, especially from the private side.”
Repeated supply shocks are likely to keep average headline inflation above target at 5.1% on year in 2024, it said. It has projected average core inflation to only decline to 4.5% on year in 2024 from an estimated 5.1% in 2023 given food and oil supply shocks and a steady growth outlook.
On a financial year basis, Goldman Sachs said CPI inflation to average 4.9% in FY25, down from 5.6% in FY24. Core inflation will average 4.6% in FY24 and FY25.
“Somewhat elevated inflation relative to target will limit the room for monetary easing — we forecast the RBI to stay on hold until Q4 2024 and then cut only 50bp cumulatively by early 2025.”
It has projected that the central government will cut the fiscal deficit by 50bps to 5.4% of GDP in FY25 from 5.9% in FY24.
“The pivot towards subsidies and welfare spending going into the elections is likely to continue, though given the fiscal constraints from the stock of debt (India’s public debt to GDP ratio is above 80%, one of the largest in Emerging Market), we don’t expect the government to increase the fiscal deficit,” it noted.
A decline in public capital expenditure (as a % of GDP) will have to share the burden of fiscal consolidation, among a reduction in other current expenditures, it added.
Higher oil prices, slower growth in trading partners, and steady domestic growth are likely to increase the current account deficit (CAD) by 60bp to 1.9% of GDP in 2024 from 1.3% in 2023. The CAD will likely be 2.1% in 2023-24, up from 1.5% in 2023-24, it said.
Nearly $600bn of forex reserves should continue to allow the RBI to intervene promptly and keep the USD/INR stable, the firm said. “We expect the USD/INR to hover around 83.0 – 84.0 over the next 3-6 months, and expect it to appreciate slightly to 82.0 over 12 months, driven by our US economics/FX research colleagues’ expectation of Fed cuts beginning in Q4 2024 and a softer broad USD by then.”
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