India to grow at 5.8 percent next fiscal: Goldman Sachs (Lead)

January 20th, 2009 - 8:03 pm ICT by IANS  

New Delhi, Jan 20 (IANS) India’s economic growth will fall to 5.8 percent and inflation to one percent in the next fiscal, a leading global consultancy said in a report released Tuesday.”The Indian economy will go through a challenging time in 2009,” the report by Goldman Sachs said.

“We expect gross domestic product (GDP) growth to slow to 5.8 percent in FY10 due to rapidly falling external demand and slowing investment demand,” the report said.

The consultancy attributed its lower economic growth projection for India to rapidly falling external demand and slowing rate of investment-led consumption within the country.

The Indian economy expanded 9.1 percent in the fiscal year ended March 31, 2008, but the growth fell to 7.7 percent in the first half of the current fiscal.

Even Prime Minister Manmohan Singh had projected a lower growth of 6.5-7 percent for the current fiscal.

“The latest estimates for the final outcome in 2008-09 vary between 6.5 and 7 percent. The exact figure is not critical. The important point is that although growth is lower, it is still much higher than most other countries,” the prime minister said Saturday.

Striking an optimistic note, the Goldman Sachs prediction for inflation rate is much lower.

“We also expect WPI (wholesale price index) inflation to average 1 percent in FY10, down sharply from an estimated 9 percent in FY09. Our strategists remain underweight on the Indian stock market,” said Tushar Poddar, an economist at Goldman Sachs.

The inflation breached the double-digit mark in 2008, resulting in monetary tightening by the central bank.

The report, however, added that rural consumers, the government, falling inflation and low-cost housing will provide some downside protection in 2009.

According to the report, “800 million rural consumers across the nation, far removed from the credit crunch, un-leveraged, are benefiting from a decent agricultural crop, and substantial government assistance by way of an agricultural loan waiver, employment guarantees, and large investments in rural infrastructure,” and this will be a key driver of growth in 2009.

“The government will take centre-stage in 2009, with its spending growth far exceeding that of other sectors in the economy,” said Pranjul Bhandari, Goldman Sachs economist who co-authored the report.

“The expenditures will also be boosted by India-Pakistan tensions, which look certain to aid defence and security spending and upcoming general elections, the largest democratic exercise in history,” Bhandari added.

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