Goldman Expects India’s GDP to Grow at 7.9% Next Fiscal

The country’s Gross Domestic Product (GDP) is expected to grow by 7.9 per cent next financial year on the back of rising domestic demand and higher capital spending by the government, even though global economy will remain anaemic, Goldman Sachs said today (December 09, 2015).

India is already the fastest-growing large economy and will remain so in FY17. We have positive views on the economy. The cyclical upturn will continue to be driven by the domestic demand.

The investment demand will improve gradually, driven by greater government spending on infrastructure — particularly railways and highways, lower interest rates, rising foreign direct investments (FDI) inflows and ongoing improvements in ease of doing business, including some improvement in stalled projects.

Moreover, the economic activity can be boosted by both monetary and fiscal policy being looser next year

The economy should also reap the benefits of the 125-basis point reduction in interest rates by the Reserve Bank of India and the continued weakness in commodity prices.

Higher productivity growth from improvements in technology, education and the ease of doing business (TEEs) can boost potential growth to 8 per cent from FY17 through FY20.

However, on the inflation side, headline inflation will inch up to 5.3 per cent in FY17 against the projected 4.9 per cent in FY16, driven by an uptick in both core and food inflation.

The inflation trajectory would be influenced by the effects of El Nino, which could add about 35 basis points to headline inflation and by a narrowing of the output gap.

The RBI has retained the option of cutting rates again, the bar for another rate cut is not very high and expects the RBI to remain on hold through 2016.



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