Indian economy: In its 2023 outlook, Goldman Sachs stated that if India keeps up its economic reforms over the medium term, potential growth will increase beyond the current predicted 6 percent.
“The biggest opportunity for India to spur economic growth and job creation in this decade, is to develop globally competitive manufacturing hubs as the world restructures the supply chains,” the brokerage said.
“However, to really become a manufacturing powerhouse will require a coordinated strategy across all related government departments to truly make it easy for global manufacturing to set up shops in India,” it added.
On February 1, the Indian government is anticipated to publish its budget for the upcoming fiscal year, amid hopes that it will keep investing in infrastructure and reforms to support medium-term growth.
Over the past few years, the government has prioritised increasing local manufacturing while also increasing infrastructure spending to encourage private investment. It has also introduced a number of incentive programmes tied to production to increase manufacturing across industries.
The government must concentrate on internal demand drivers as the global recession clouds the export outlook, according to India’s chief economic adviser. The official predicts that India would expand between 6.5 and 7 percent during the next three years.
According to Goldman Sachs, the environment is currently favourable for an investment cycle rebound.
Government capital investment increased by 25% year over year to reach 2.9 percent of GDP in the current fiscal year. Government spending on capital projects has a GDP growth multiplier of 2.5X4 and may encourage more private investment, it was said.
As a result of higher than anticipated revenue collections, the central government has also been protecting citizens from shocks to the world’s price levels by lowering fuel taxes and increasing its food and fertiliser subsidies.
The general election is in 2024, therefore this policy response of absorbing food price shocks through subsidies and generating countercyclical stimulus through capex should continue the next year, according to Goldman Sachs.
Given the impact on exports caused by the global downturn, India’s current account deficit is likely to remain large despite some cushioning from resilient services exports.
The brokerage noted that given that international businesses are seeking to diversify their supply sources and that India offers an alluring possibility in the long run, growth capital may still be drawn to the country.
The dollar-rupee exchange rate is predicted to be around 84, 83, and 82 over three-, six-, and twelve-month periods, respectively, with officials likely to lift restrictions on foreign portfolio inflows to gain inclusion in global bond indices in the coming years.