Goldman Sachs revises India’s economic forecast for FY21 from -14.3% to -10.3%; expects GDP rebound in FY22

After sharply cutting India’s economic growth forecast to a 14.3% contraction barely two months ago, American Brokerage firm Goldman Sachs Tuesday revised upward it estimates to -10.3% in 2020-21 on the back of announcement of effective vaccines that could allow containment policies and mobility.

It also projected India’s GDP to rebound to a 13% growth in the next financial year (2021-22).

This marks the second such upgrade in India’s growth estimates after Moody’s last week revised upward the GDP forecast.

“We expect that the broad-based availability of an effective vaccine in India could allow containment policies and mobility to normalise by mid-2022,” Jonathan Sequeira and Andrew Tilton, economists at Goldman Sachs said.

“This should allow a meaningful activity rebound in 2021, particularly in consumer-facing services sectors, where activity remains significantly below pre-Covid levels.” The pace of rebound, however, will be restrained by some economic scarring and factors such as a weak labour market, the hit to private sector incomes and balance sheets, tighter credit supply conditions and a limited impetus from fiscal policy, the global financial firm warned.

On the price situation, it said, “inflation as measured by the consumer price index is estimated at 6.2% in 2020-21, and is likely to decline to 4.6% in FY22 as food prices fall on easing supply restrictions, a benign monsoon, and favourable base effect. Core inflation could also moderate given low manufacturing capacity utilisation and rupee appreciation”.

“As such, easing inflationary pressures should create more room for the Reserve Bank of India to lower rates. “We expect the RBI to cut policy rates by another 35 basis points early next year,” said the firm, implying any further rate cut this year is ruled out.

Earlier this week, Moody’s had revised its growth estimates upward to 8.6% contraction in the Indian economy from an earlier 9.6%.