India’s economic growth is expected to grow from 5.4% in 2012 to 7.2% in 2014 and remain high through 2015-2016, according to American Investment Bank, Goldman Sachs. Three factors drive Goldman Sach’s view — a decline in oil prices in real terms over the next few years, a more favorable external demand outlook and domestic structural reforms which can ease some supply-side constraints.
The bank sees headline inflation remaining high through the third quarter of 2013, before gradually waning. Core inflation remains elevated throughout. The investment bank also expects the RBI to cut policy rates by 50 basis points each in 2013, 2014 and 2015. Elevated core inflation prevents a more aggressive near term easing. The current account deficit is expected to decline gradually, largely due to a lower oil deficit compensating for an increase in the non-oil trade deficit. An improving balance of payments and the rupee being close to the lower end of its trading band has lead it to expect an appreciation relative to the dollar over the next couple of years. The 2013-16 forecasts for rupee to the dollar are at 52, 50, 51 and 52.
“While allowing FDI in retail, the goods and services tax, the direct cash transfer of subsidies, and the dedicated freight corridor will help, we believe further reforms on fiscal consolidation, financial liberalisation and infrastructure growth will be needed to sustain an improvement in trend growth,” the bank said.
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