2024 GDP growth will slightly slow to 6.3%; the primary risk in an election year will be political unpredictability

India’s real GDP growth is expected to drop slightly from 6.4% predicted for 2023 to 6.3% in 2024, according to a report released on Monday by an American trading company.

According to a forecast by Goldman Sachs, the forthcoming calendar year will be divided into two parts. The first will see government expenditure leading up to the general elections, and the second will see a pick-up in investment growth, particularly from the private sector.

From the standpoint of the current fiscal year, the brokerage said that it anticipates growth to quicken to 6.5% for FY25, up from 6.2% for FY24.

“In the area, India has the strongest chances for structural development. We think GDP growth is expected to remain strong at 6.3% y-o-y (year over year) in 2024, the brokerage said, noting that the nation is less vulnerable to possible external shocks including extended global interest rates, ongoing currency strength, and geopolitical unpredictability.

The brokerage said that although the risks to the economic forecast are well balanced, “the main domestic risk” is coming from political unpredictability since elections are scheduled for the April–June quarter of 2024.

The article said that investors would be “keenly watching” the results of these elections with an eye toward economic changes and/or policy continuity. The election season has already begun with Assembly votes in five states, with the General Elections to follow later.

It projects headline consumer price inflation for 2024 to be 5.1%, compared to the Reserve Bank’s prediction of 4.7%. It also said that this would be less than the 5.7% predicted for 2023.

It said, “In an election year, we expect the government to intervene through subsidies or other measures to keep a lid on food prices.”

The RBI would only reduce rates by 0.50 percent to 6 percent by early 2025 due to the “somewhat elevated” inflation compared to the objective, the brokerage said, adding that there will be reductions of 0.25 percent in Q4 2024 and Q1 2025.

It said that although the current account deficit is predicted to increase to 1.9% of GDP in 2024 from 1.3% in 2023, the rupee is likely to strengthen to 82 versus the dollar by the end of 2024, down from 83 at the end of 2023.