India's Growth Pace May Slow In 2023 As Post-Pandemic Benefits Fade: Goldman Sachs

India's gross domestic product (GDP) likely to expand by 5.9 per cent in calendar year 2023 from an estimated 6.9 per cent this year, according to Goldman economists

Citing a hit to consumer demand from higher borrowing costs and fading benefits from pandemic reopening, Goldman Sachs Group Inc. cut its forecast for India’s economic growth next year, reported by Bloomberg. The country's gross domestic product (GDP) likely to expand by 5.9 per cent in calendar year 2023 from an estimated 6.9 per cent this year, Goldman economists led by Andrew Tilton wrote in a report.

“Growth will likely be a tale of two halves, with a slower first half as the reopening boost fades, and monetary tightening weighs on domestic demand,” they wrote. “In the second half, growth is likely to re-accelerate as global growth recovers, drag from net exports diminishes, and investment cycle picks up.”

According to Bloomberg, India, which emerged from the pandemic to reclaim the fastest-growing major economy title last financial year ended March, is struggling to repeat that performance amid a plethora of challenges, from a hawkish US Federal Reserve to higher consumer-price growth, and widening fiscal and external deficits. Goldman sees a pickup in investment cycle toward the second-half of 2023 aiding India’s growth rebound.

The rupee is among the best performing currencies in the region despite some depreciation against the US dollar, the Goldman analysts said, adding that headline inflation too will ease to 6.1 per cent next calendar year from an estimated 6.8 per cent this year.

Upside risks to inflation means the Reserve Bank of India (RBI) will likely raise the benchmark interest rate by 50 basis points in December and another 35 basis points in February, to hit a terminal rate of 6.75 per cent, Goldman economists wrote. The benchmark rate now stands at 5.9 per cent.

Recently, RBI in its bulletin said that the economy is expected to grow between 6.1 per cent and 6.3 per cent in the second quarter (Q2) of the current financial year based on high frequency indicators and economic prediction models.

“If this is realised, India is on course for a growth rate of about 7 per cent in 2022-23," the central bank said.

Data for the July-September quarter will be released at the end of this month.

"With headline inflation beginning to show signs of easing, the domestic macroeconomic outlook can best be characterised as resilient, but sensitive to formidable global headwinds," the central bank said.