INDIA’S annual economic growth is forecast to slow to about 6 per cent for a few years, according to economists from firms including Goldman Sachs Group and Barclays. And they say that’s not such a bad thing.

Gross domestic product (GDP) expansion at about 6 per cent is a sweet spot for Asia’s third-largest economy to steer inflation back to the target of Reserve Bank of India (RBI), and also to narrow budget and current account deficits, said Rahul Bajoria of Barclays. Price gains have stayed above RBI’s 2 per cent to 6 per cent target since the start of 2022, and the central bank seeks to cool it to 4 per cent by 2024. 

For Santanu Sengupta of Goldman Sachs, a growth slowdown will be good for India. He expects GDP expansion to ease to 6 per cent next fiscal year from 7.1 per cent in the year ending March. “That would make the twin deficits problems more manageable,” he said last week, referring to budget and current account gaps.

The South Asian nation may lose its world-beating growth distinction as demand may be impacted by borrowing costs, which have returned to pre-pandemic levels after 190 basis points of key rate increases since May to tame inflation. GDP probably rose 6.2 per cent in the three months to September from a year ago, slowing from 13.5 per cent in the period of April to June, according to a Bloomberg survey of economists before the release of Wednesday’s data.

A slower growth in India would also be consistent with a much deeper global slowdown, said Saugata Bhattacharya, chief economist of Axis Bank. “The reduced demand will help control the current account deficit and enable a steeper glide path of inflation.” 

Economists in a Bloomberg survey forecast India to expand at 7 per cent this fiscal year ending March, and then slow down to 6.1 per cent the year after. Inflation is also forecast to ease to 5.1 per cent in the financial year to March 2024 from 6.7 per cent in the current fiscal year.

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The International Monetary Fund earlier this year said India’s growth potential in the next five years has slipped to 6.2 per cent from an earlier estimate of up to 7 per cent.

“The key issue is that India’s widening growth differentials relative to the rest of the world is double-edged, as it brings risks of a larger external deficit with it,” said Barclays’ Bajoria. 

The Indian economy is in a better shape than most other large economies, but its momentum will be affected by the global slowdown, said Niranjan Rajadhyaksha, chief executive of Artha India, an economic research firm. “Given the current levels of inflation, trade deficit and fiscal deficit, it would be better to consolidate for now rather than push for extra growth by stimulating domestic demand.” BLOOMBERG