GDP growth could dip amid uncertainties surrounding upcoming elections
Goldman Sachs predicts a slight decrease in India's real GDP growth to 6.3% in 2024, down from the 6.4% forecasted for 2023. The report indicates that political uncertainty surrounding the general elections in the April-June quarter of 2024 poses the primary domestic risk for this downturn. The year will be split into two parts, with government spending fueling growth before the elections and private sector investment growth picking up after the elections.
Accelerated growth is expected for FY25
Looking at the fiscal year, Goldman Sachs anticipates India's growth to speed up to 6.5% for FY25, up from the 6.2% projected for the current FY24. The brokerage firm considers India to have the most promising structural growth potential in the region and to be less vulnerable to possible external shocks such as higher global rates, a sustained strong dollar, and geopolitical uncertainties. Nevertheless, risks surrounding the growth outlook remain evenly distributed.
Inflation and government intervention are factors to consider
Goldman Sachs forecasts that headline consumer price index (CPI)-based inflation will reach 5.1% in 2024, compared to the Reserve Bank of India's (RBI) estimate of 4.7%. This is a decrease from the 5.7% expected in 2023. The report implies that the government will likely step in with subsidies or other measures to control food prices during an election year. However, the "somewhat elevated" inflation compared to the target will restrict opportunities for monetary easing.
RBI rate cuts and currency outlook are also important considerations
The brokerage firm anticipates that the RBI will only reduce rates by 0.50% to 6% by early 2025, with a 0.25% cut each in Q4 2024 and Q1 2025. The current account deficit is predicted to expand to 1.9% of GDP in 2024 from the 1.3% expected in 2023. Despite this, the rupee is projected to strengthen to 82 against the dollar by the end of 2024, compared to the 83 level at the end of 2023.
