Goldman Sachs has provided a nuanced perspective on India’s economic trajectory, forecasting a slight decrease in the real GDP growth to 6.3% in 2024, down from the 6.4% projected for 2023.

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The report identifies political uncertainty surrounding the general elections in the April-June quarter of 2024 as the primary domestic risk contributing to this downturn. It anticipates a dichotomy in the year, with government spending driving growth before the elections and private sector investment gaining momentum post-election.

Looking ahead to the fiscal year, Goldman Sachs foresees an acceleration in India’s growth to 6.5% for FY25, up from the 6.2% projected for the current FY24. The brokerage firm positions India as having the most promising structural growth potential in the region, exhibiting resilience to potential external shocks such as higher global rates, a sustained strong dollar, and geopolitical uncertainties. Despite this optimism, the report notes that risks surrounding the growth outlook are evenly distributed.

In terms of inflation, Goldman Sachs predicts a headline consumer price index (CPI)-based inflation of 5.1% in 2024, slightly higher than the Reserve Bank of India’s (RBI) estimate of 4.7%. This projection represents a decrease from the 5.7% expected in 2023. The report suggests that government intervention, possibly through subsidies, will likely be implemented to control food prices during the election year. However, the report highlights that the “somewhat elevated” inflation compared to the target may limit opportunities for monetary easing.

Goldman Sachs also weighs in on the RBI’s potential actions, forecasting a modest 0.50% reduction in rates to 6% by early 2025, with incremental cuts of 0.25% each in Q4 2024 and Q1 2025.

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Despite a predicted expansion of the current account deficit to 1.9% of GDP in 2024 from the expected 1.3% in 2023, the report paradoxically projects a strengthening of the rupee to 82 against the dollar by the end of 2024, compared to the 83 level at the end of 2023. This complex economic landscape presents challenges and opportunities for India as it navigates through a crucial period of political and economic shifts.