In its annual outlook report released on Wednesday, investment bank Goldman Sachs said it expects India’s GDP to grow by 7.9 percent next fiscal, the fastest among emerging market economies, driven by rising domestic demand, higher capital spending by the government and accommodative monetary policy.
“A cyclical upturn is already underway as shown by the data and we believe that this will get pronounced as we go into the next year,” Goldman Sachs India chief economist Tushar Poddar told reporters.
According to Poddar, the report of the Seventh Pay Commission (SPC), if implemented in totality, is expected to add about 35 basis points (bps) to GDP growth.
However, the increase in rent allowances through the wage hikes will also increase nflationary pressures, adding about 35 bps to headline retail inflation and preventing the RBI from cutting rates.
This would be lower than in the previous round of wage hikes, where the addition to inflation was about 90 bps, the bank noted. Goldman Sachs expects average consumer price inflation to hover around 4.9% in the current fiscal.
Sacs said the markets haven’t factored in the impact from the Fed rate hikes completely. The bank expects the U.S. central bank to hike rates by 100 bps through 2016.
On rupee, Poddar said stronger macroeconomic fundamentals of the Indian economy, pickup in growth and expected strong foreign direct investment flows would keep the rupee afloat post Fed hike.
The material has been provided by InstaForex Company – www.instaforex.com