Goldman Sachs pegs India’s GDP growth at 7.9%

Bq: For the fiscal year 2016-17, we forecast real GDP to grow by 7.9% year-on-year, higher than consensus expectations of 7.5% and up from 7.6% in FY16 —Goldman Sachs research note

New Delhi, August 25

Indian economy is expected to clock 7.9% growth in the current fiscal driven by better monsoon, government pay hike, key reforms and FDI inflows, Goldman Sachs said today.

The global financial services major said the GDP is expected to improve gradually and for the April-June quarter it may slow a tad to 7.8%, in part due to unfavorable base. It had grown at 7.9% in the previous quarter.

"For the fiscal year 2016-17, we forecast real GDP to grow by 7.9% year-on-year, higher than consensus expectations of 7.5% and up from 7.6% in FY16," Goldman Sachs said in a research note.

It further noted that a better monsoon, civil service wage hike following the 7th Pay Commission, a favorable fiscal monetary policy mix, the recent passage of key reforms and continued FDI inflows should all support growth.

It said key risks to India's growth trajectory include a faster pace of US Fed rate hikes than is currently priced in, concerns about Chinese growth and capital flows. Domestically, it cited aggravation of bad loans problem of state-owned banks or fiscal revenue slippage as potential risks.

Moreover, corporate leverage may constrain activity in heavily levered sectors, it added.

Lauding the several important policy changes and reforms that have taken place over the past couple of months in the country like passage of the GST bill, government approval of the inflation targeting framework (along with the designation of a new RBI governor), Goldman Sachs said these initiatives paint a "positive" picture for the economic trajectory ahead.

Positive monsoon development for the first time in three years is also supportive of growth numbers.

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