Investment banker Goldman Sachs in its economic forecasts for India is upbeat on growth but not so on inflation.

While raising the GDP growth for India by 10 basis points to 6.6 per cent, on the back of higher investment spending and activity in the calendar year 2024, Goldman Sachs in a report expressed concern over inflationary pressure on the economy.

The report said the combined effect of an increase in vegetable and pulses prices along with sticky cereals inflation was likely to keep food inflation high.

“We forecast headline inflation at 5.2 per cent in Q1 CY24 (January to March, 2024), driven by high food inflation, even as core inflation has declined below the RBI’s target of 4 per cent.

“We expect the RBI to take comfort from declining core inflation, slightly soften its hawkish forward guidance, but remain cautious given upside risks to food inflation from weather shocks, and repricing of the Fed funds rate easing path,” the investment banker said .

The Q4 real GDP growth (8.4 per cent) surprised materially to the upside driven by higher investment spending, while private consumption expenditure remained muted.

“Given the stronger than expected print and upward revisions to the earlier series by the statistical office, we raised our CY24 (2024) growth forecast by 10bp to 6.6 per cent.”

The report said the headline CPI inflation to increase modestly to 5.2 per cent in March from 5.1 per cent in February on the back of an increase in vegetable prices (onion and potato) and pulses (legumes) prices.

The combined effect of the increase in vegetable and pulses prices along with sticky cereals inflation is likely to keep food inflation elevated at 8.1 per cent.

Core inflation — headline inflation excluding food and fuel inflation — will decline modestly by 10bp to 3.2 per cent driven by lower core goods and services inflation and a reduction in pump prices of fuel, combined with a reduction in VAT by the states.

“We estimate food inflation to remain elevated above 7.5 per cent in 1H CY24 on the back of high cereals and pulses (legumes) inflation on the back of an ongoing heatwave in the country.

The report said it expects core services inflation to bottom out in January to March and increase towards 4 per cent by mid-2024 driven by an up-turn in housing (rental) inflation. It expects core goods inflation to increase on the back of a rise in manufacturing input costs.