Goldman Sachs Raises India's GDP Growth Forecast to 6.7% for 2024

Upgraded GDP Forecast

Goldman Sachs has raised its forecast for India's GDP growth in 2024 to 6.7%, an upward revision of 10 basis points (bps) from its previous estimate. This adjustment reflects sustained growth momentum and additional fiscal space provided by a substantial dividend transfer from the Reserve Bank of India (RBI).

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Factors Behind the Upgrade

The revision is attributed to a combination of robust high-frequency economic indicators and enhanced fiscal capacity. Analysts at Goldman Sachs,highlighted a strong performance in the first quarter, with their proprietary consumption index showing a 7.8% year-on-year (YoY) increase. 

This growth is supported by a nascent recovery in rural consumption and sustained momentum in urban consumption.

Investment and Fiscal Space

The significant dividend transfer from the RBI is expected to bolster infrastructure spending, providing additional fiscal space. This has led Goldman Sachs to revise its growth forecasts slightly higher for 2024. The analysts believe that investment growth momentum will continue, driven by this enhanced fiscal capacity.

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Inflation Outlook

Goldman Sachs forecasts that core inflation will bottom out in the April-June 2024 quarter, stabilizing around 4.0% to 4.5% in the year's second half. However, RBI's Monetary Policy Committee (MPC) members remain cautious about food inflation due to supply-side disruptions caused by ongoing hot weather conditions across India.

RBI's Monetary Policy Outlook

The Goldman Sachs report suggests that the RBI will likely wait to see the progress of the monsoon season and the sowing of the summer (Kharif) crop before deciding on monetary policy easing. As a result, Goldman Sachs has pushed its expectation for the first RBI rate cut to the October-December 2024 quarter, instead of the July-September quarter as previously anticipated.

Expected Rate Cuts

Goldman Sachs continues to predict a shallow easing cycle, with a total of 50 bps rate cuts from the RBI. The first 25 bps cut is anticipated in the December 2024 meeting, followed by another 25-bps cut in the first quarter of 2025.

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Global Context and Federal Reserve

The timing of the RBI's rate cut is also influenced by the trajectory of the US Federal Reserve's monetary policy. Goldman Sachs has delayed its forecast for the Fed's first rate cut to September 2024, previously expected in July, with a second cut projected for December 2024. This adjustment reduces the urgency for the RBI to commence its own easing cycle immediately.

Conclusion

Goldman Sachs' revised outlook for India's GDP growth and the anticipated rate cuts by the RBI reflect a complex interplay of strong domestic growth, inflation dynamics, and global monetary policies. The analysts underscore the importance of monitoring weather conditions and global economic trends as key factors influencing India's economic trajectory and monetary policy decisions in the coming year.

 Also Read: India's Economic Growth Slows to 6.7% in January-March Quarter