Goldman forecasts dip in GDP growth to 6.8% in FY17

According to Goldman Sachs, post the ‘dramatic currency reform’ the liquidity shortage would be a significant constraint on domestic activity, which in turn would affect GDP growth. File Photo

Goldman Sachs has forecast a deceleration in India’s GDP growth to 6.8 per cent this fiscal, down from 7.6 per cent last financial year, due to demonetisation. According to Goldman Sachs, post the ‘dramatic currency reform’ the liquidity shortage would be a significant constraint on domestic activity, which in turn would affect GDP growth.

“In the short term, the liquidity shortage appears likely to be a significant constraint on domestic activity, leading us to forecast a deceleration in GDP growth to 6.8 per cent in FY17 (below consensus), down from 7.6 per cent in FY16,” Goldman Sachs said in a research note.

Eventually, the currency reform should help to move economic activity into formal channels, accelerate financial inclusion, and increase government revenue, it added. According to the report, the “large, young, lower-income” economies of India, Indonesia, and the Philippines have higher growth potential — in theory. But in practice, much will depend on domestic policy and the pace of economic reform.