By IANS
New Delhi : Even as Prime Minister Manmohan Singh feels India can push its economic growth rate to 10 percent, global consultancy Goldman Sachs says cyclical headwinds will moderate it to 8 percent next year.
“India’s economic growth is set to moderate in 2008 due to cyclical headwinds of high interest rates, rapid currency appreciation, weakening global demand and high oil prices,” the consultancy said in a report released Wednesday.
“The economy reached its cyclical peak in the first half of 2007, growing by 9.2 percent and we believe will moderate to trend over the next two years,” said the report titled “India: Cyclical headwinds to structural growth story”.
“Our forecasts for gross domestic product growth are 8 percent in fiscal year 2009 and 8.3 percent in fiscal year 2010. Consensus for fiscal year 2009 stands at 8.2 percent,” the report said.
“The economy, however, remains structurally strong and fears of a hard landing are greatly exaggerated.”
The report forecasts core inflation to be contained within the Reserve Bank of India’s (RBI) target of 4-5 percent, but adds upside risks include liquidity, high oil and commodity prices, fiscal expansion and currency appreciation.
On the external side, the report expects capital inflows to remain strong due to the “India growth story” as also because of its strong earnings growth and its own appetite for $475 billion to finance infrastructure upgrades.
“The key downside risks to our growth forecasts are a significant deterioration in the political or external environment, while upside risks stem from higher-than-expected inflows or looser fiscal and monetary policy,” it said.
“On the political front, 2008 is unlikely to be a quiet year. Elections in the critical state of Gujarat will kick off what could be a volatile year with mid-2008 elections a strong possibility.”
The report also said that the region as a whole is not exactly tranquil because of the political instability in Pakistan, Sri Lanka and Nepal, and army rule in Bangladesh.
“Risks of a large negative shock in one of the neighbours leading to some spill over onto India have increased. However, India’s limited economic ties with the rest of South Asia suggest the fall-out on the domestic economy may be limited.”