Goldman Sachs positive on Indian economy

New Delhi: A better than average monsoon, rise in urban demand due to pay hikes for government employees and pensioners, and policy reforms by the government could lead to 7.9 per cent gross domestic product (GDP) growth in India this year, global investment bank Goldman Sachs said on Thursday.

This compares to a GDP growth forecast of 7-7.5 per cent for 2016-17 in the government’s Economic Survey. Finance Minister Arun Jaitley has also said on occasion that the growth could cross eight per cent.

Goldman Sachs said an unfavorable base would lead to a marginal slowing in the April-June quarter to 7.8 per cent. GDP growth was 7.9 per cent in January-March and 7.6 per cent in 2015-16.

Financial analysis firm ICRA on Thursday said it expected growth of gross value added (GVA) at basic prices to be 7.2 per cent in the first quarter of the financial year (April-June) , while easing mildly on a sequential basis, from the 7.4 per cent in the previous quarter. “ICRA expects a pick-up in growth of industry to 7.1 per cent in Q1 from 6.7 per cent in Q1 of FY16, which would offset a decline in growth of services and agriculture & allied activities,” said Aditi Nayar, senior economist.

Goldman Sachs says a favourable fiscal and monetary policy, passage of key reforms and continued foreign direct investment (FDI) were all in tandem.

"These developments have supported foreign capital inflows over the past quarter. More, a stable rupee amidst global risk-off events, including Brexit, has helped investor confidence," it said.

Passage of the goods and services tax (GST) Bill, government approval of the inflation targeting framework  and the naming of a new Reserve bank (RBI) governor  was mentioned by Goldman Sachs for painting a "positive" picture for the trajectory ahead. With Urjit Patel to take over as RBI's next head, the central bank might continue its anti-inflationary stance and keep key policy rates on hold for the rest of the year, it felt.

However, it warned that a faster pace of rate increases by the US Federal Reserve, concerns about Chinese growth and unpredictable capital flows constituted key risks to growth.

Among domestic issues, the research note pointed to aggravation in the piling up of bad loans at public sector banks or fiscal revenue slippage as risks. Also, corporate debt might constrain activity in heavily levered sectors.

The report said beside big reforms like the GST Bill and the bankruptcy code, several 'nuts and bolts’ changes had also been done, including measures to ease the doing of business, pick-up in infrastructure investment, and easing in FDI restrictions in the defence, aviation, retailing and e-commerce sectors.

"We believe the government's focus on executing these reforms and building rural infrastructure will have a gradual positive impact on India's economic growth trajectory," the report said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.