India Growth to Rebound to 8% in FY19: Goldman Sachs

India’s economic growth will bounce back to 8% in the next fiscal year as one-time hits due to demonetisation and goods and services tax wear off and benefits due to formalisation of the economy, strong global growth and recapitalisation of public sector banks kick in, US-based investment bank Goldman Sachs said in its year-end forecast.

India’s growth will accelerate to 8% in the fiscal year through March 2019 from 6.4% in fiscal 2018, the bank said, making it the fastest growing major economy in the world, like it was in fiscal 2017 with a 7.1% expansion.

GS expects the ₹2.11-lakh-crore bank recapitalisation, announced last month, to boost credit supply and lower borrowing costs as healthier public sector banks push lending. Wage hike for government workers and higher infrastructure spending from the government will also boost growth.

Accelerating inflation, mainly due to higher food prices, could lead to a shift in the Reserve Bank of India’s monetary policy stance by the middle of the next fiscal year, the investment bank said. GS expects consumer price inflation in India to rise to 5.3% in fiscal 2019 from 3.4% this year, as food prices rise from a low base.

Higher inflation will lead the Reserve Bank of India increase its benchmark repo rate by threefourths of a percentage point between October 2018 and June 2019 — from 6% now to 6.75%, it said.  It expects the rupee to rise to 62 a dollar from around 65 currently.

The bank expects the local stock market to yield 14% returns in local currency, which means that the 50-share Nifty index will rise to over 11,600 by December 2018 (vs 10,215 on November 16).

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