India’s Economic Growth Outlook by Goldman Sachs for 2024-25

Priyanshi Pareek reports on India’s Economic Growth Outlook..

As India’s population of 1.4 billion people becomes the world’s largest, its GDP is forecast to expand dramatically. Goldman Sachs Research projects India will have the world’s second-largest economy by 2075.

Santanu Sengupta from Goldman Sachs Research emphasises India’s potential lies in leveraging its growing population by increasing labour force participation and providing skill training. 

With a low dependency ratio over the next two decades, India has an advantage with a significant working-age population compared to children and elderly. This presents a critical window to focus on setting up manufacturing, expanding services, and developing infrastructure for sustained growth.

What made Goldman Sachs Research’s long-term forecasts for India’s economy?

India’s progress in innovation and technology goes beyond demographics, highlighting the importance of innovation and increased worker productivity for its GDP growth. Greater output per unit of labour and capital is crucial. 

Capital investment, driven by a rising savings rate, falling dependency ratios, and a robust financial sector, is poised to boost growth. While the government has played a role, healthy private sector balance sheets suggest conditions for a private capex cycle. 

Favourable demographics present growth potential, but leveraging the large labour force necessitates enhancing participation rates through creating opportunities and upskilling.

Risks to Goldman Sachs Research:

The main downside risk for India’s growth lies in the stagnant labour force participation rate, particularly for women. Increasing opportunities, especially for women, can bolster this rate and enhance potential growth. 

On the upside, productivity growth can drive expansion, supported by India’s significant strides in digitalization. 

The Aadhaar biometric ID system has streamlined public service delivery, widened credit access for smaller businesses, and holds the potential to boost productivity, thereby contributing to growth.

Goldman Sachs said repeated supply shocks along with stable growth are likely to keep inflation above the central point of the Reserve Bank of India’s (RBI) target of 4.0 per cent in 2024. “We forecast headline CPI inflation to decline to 5.1 per cent year-on-year (average) in 2024, above the RBI’s and consensus forecast of 4.7 per cent year-on-year, from an estimated 5.7 per cent in 2023,” it said.

Sectoral Projections for 2024-25: Investment and Consumption

Investment Projection: Goldman Sachs projects a substantial increase in gross fixed investment, forecasting a growth rate of 7.5% in 2024-25, compared to 6.4% in the current fiscal year. This growth is seen as a positive signal for the overall economic landscape.

Private Consumption: Contrastingly, the outlook for private consumption suggests a decline, dropping from 7.5% to 5.5%. This shift underscores the expected shift in the economic driver from consumption to investment in the coming fiscal year.

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