Polls to help economy grow by 6.4% this fiscal: Goldman

Last Updated: Fri, Apr 19, 2013 10:30 hrs

Wall Street brokerage Goldman Sachs today projected an 'above-consensus' growth of 6.4% for the current fiscal on factors like the upcoming general elections which, it said, will increase government spending, lower interest rates and lead to action on the policy front.

"We reiterate our above-consensus GDP growth forecast of 6.4%. The key to an improvement in activity is a pickup in the investment cycle," it said in a report.

It said higher government capex coupled with falling rates and policy reforms to ease bottlenecks and manufacturing export growth will drive investments during the ongoing fiscal.

Yesterday, the UN pegged the calender 2013 growth at 6.4%, while the ADB last projected that the domestic economy would reach 6% in the current fiscal.

In the budget, the government had pegged growth at between 6.1 and 6.7%. Rating agency Crisil had lowered its FY14 growth estimate to 6% from the earlier 6.4% earlier this week.

Official estimates suggest the economy might have expanded 5% in the recently concluded fiscal, the lowest in ten years.

"The year before the elections is generally associated with increased government spending. Indeed, government spending (as a percentage of GDP) has increased the year before the elections, in each of the last four general elections," it said.

While stating this also increased the possibility of a higher fiscal deficit, it called it a "positive stimulus to the economy."

Crisil had cast doubts whether the government will be able to achieve its stated objective of reigning-in fiscal deficit at 4.8%.

Among other reasons cited include the expected lowering of interest rates by the RBI besides a drive on the policy front to expedite projects.

"Ongoing policy reforms to de-bottleneck infrastructure and other investments, particularly, the Cabinet Committee on Investments can help," the Goldman Sachs report said.

Additionally other factors like the improvement in the global economic climate will also act as a "tailwind," Goldman said.

The report pointed out to data displaying some "greenshoots" like that on the index of industrial production, exports, and non-food credit.

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