Goldman Sachs expects India’s economic growth to be slower than RBI estimates

Global investment bank Goldman Sachs anticipates that India's economic growth will reach 6 percent, which is lower than the Reserve Bank of India's (RBI) estimate of 6.5 percent.

On September 12, there was an unexpected development in the economic data. The August consumer price index (CPI) figure was lower than anticipated at 6.83 percent, in contrast to the expected 7.08 percent as per CNBC-TV18's economist survey. Conversely, the industrial output for July surpassed expectations with a growth rate of 5.7 percent, exceeding the projected 5.2 percent. It's noteworthy that the latest Industrial Production Index (IIP) figure represents the highest level since November 2022.

In an interview with CNBC-TV18, Santanu Sengupta, Chief Economist-India at Goldman Sachs discussed the implications of these developments for the economy, including the possibility of upgrades to growth forecasts and reductions in concerns regarding inflation.

As per him, the initial prediction for this month was set at 6.9 percent, but the real value has proven to be slightly lower, coming in at 6.8 percent. Goldman Sachs remains constant in its belief in the quarterly forecast of 6.7 percent for the ongoing quarter. Nevertheless, the firm acknowledges a slight potential downside to this projection, taking into account the preliminary September inflation estimate. It's worth highlighting that this estimate relies on data from the first 10 days of September.

“We have not made any change to the full year estimate, we were at 5.5 percent, and we are staying there; the nature of vegetable prices is such that it goes up very sharply, it is extremely volatile, it comes down also very sharply,” Sengupta said.

The portion of the consumer price basket attributed to food inflation, making up nearly half, decreased to 9.94 percent from the previous month's 11.51 percent.

In August, rural inflation stood at 7.02 percent, slightly surpassing urban inflation, which was at 6.59 percent.

Speaking to CNBC-TV18 on September 12, Rupa Rege Nitsure, Chief Economist at L&T Financial Services said, "The numbers are better than expected, but the inflation rate is still higher than RBI's upper limit. The central bank will remain vigilant given the uneven rainfall. Not just Kharif, Rabi crops can also be impacted."

"Notwithstanding the reversal of the relatively transient spike in tomato prices, the outlook for food inflation remains on edge, on account of other vegetables like onions, as well as kharif crops with a year-on-year (YoY) lag in sowing such as pulses. Well-distributed rainfall in the rest of September could help to protect kharif yields, even as reservoir levels do not portend well for an early kick-off of rabi sowing," said ICRA's Aditi Nayar.

In the meantime, data from the Ministry of Statistics revealed that India's industrial production, as gauged by IIP, climbed to 5.7 percent in July, marking a month-on-month increase from 3.7 percent.

Commenting on this, Sengupta said, “We have 6.1 percent for the FY24.”

Considering the weather-related disturbances, Goldman Sachs is factoring in approximately a 5 percent growth for the current quarter. However, they anticipate a rebound to around 7 percent in the following quarter. These projections reflect the impact of the disturbances, resulting in a more subdued growth forecast. Their initial estimate was at 7.8 percent, but they expect it to decrease to approximately 5 percent before rebounding to around 7 percent. On average, the growth for the second half of the calendar year is projected to be around 6 percent.

Stating this, Nikhil Gupta, an economist at Motilal, expressed expectations of stronger figures for industrial output.

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