1、Steady growth:I n 2024,we expect macro-economi c resi li ence to conti nue i n I ndi a ami dst steady growth at 6.3%yoy.The year wi ll li kely be a tale of two halves:Pre-electi ons,government spendi ng wi ll li kely be the growth dri ver.Post-electi ons,we expect i nvestment growth to re-accelerate

2、,especi ally from the pri vate si de.A floor on core i nflati on:Repeated supply shocks are li kely to keep headli ne i nflati on above target at 5.1%yoy(average)i n 2024.We expect government i nterventi on to keep a li d on food i nflati on,where possi ble,i n an electi on year.We expect core i nfl

3、ati on to only decli ne to 4.5%yoy(average)i n 2024 from an esti mated 5.1%i n 2023 gi ven food and oi l supply shocks and a steady growth outlook.A“hawki sh hold”i n a“hi gher for longer”world:Somewhat elevated i nflati on relati ve to target wi ll li mi t the room for monetary easi ng we forecast

4、the RBI to stay on hold unti l Q4 2024 and then cut only 50bp cumulati vely by early 2025.The“hi gher-for-longer”global scenario and elevated i nflati on domesti cally wi ll mean conti nued hawki sh gui dance and ti ght banki ng system li qui di ty from the RBI.Low external vulnerabi li ty:Hi gher o

5、i l pri ces,slower growth i n tradi ng partners,and steady domesti c growth i s li kely to i ncrease the current account defici t by 60bp to 1.9%of GDP i n 2024.Whi le servi ces exports have peaked(as a share of GDP)i n our vi ew,they wi ll conti nue to cushi on a wi de goods trade defici t i n 2024

6、.Forei gn portfoli o i nflows from I ndi as i nclusi on i n a global bond i ndex should help fund the current account defici t.INR:A port of calm:Nearly$600bn of FX reserves should conti nue to allow the RBI to i ntervene promptly and keep the USD/I NR stable.We expect the USD/I NR to hover around 8

7、3.0 84.0 over the next 3-6 months,and expect i t to appreci ate sli ghtly to 82.0 over 12 months,dri ven by our US economi cs/FX research colleagues expectati on of Fed cuts begi nni ng i n Q4 2024 and a softer broad USD by then.Sant anu Sengupt a+91(22)6616-9042|Goldman Sachs I ndi a SPL Arjun Varm

8、a+91(22)6616-9043|arj Goldman Sachs I ndi a SPLAndrew Til t on+852-2978-1802|andrew.ti Goldman Sachs(Asi a)L.L.C.India 2024 Out look Port of calm in a“Higher for Longer”world14 November 2023|6:19PM ISTI nvestors should consi der thi s report as only a si ngle factor i n maki ng thei r i nvestment de

9、ci si on.For Reg AC certi ficati on and other i mportant di sclosures,see the Di sclosure Appendi x,or go to following is a redacted version of the original report published 14 November,2023 20 pgs St eady growt h,sust ained macro-economic resilience wit h a higher neut ral rat e Over the last two y

10、ears,I ndi an poli cymakers deftly managed a di fficult combi nati on of multi ple commodi ty(food and oi l)supply shocks and hi gh Fed funds rate.They di d so through a combi nati on of monetary ti ghteni ng,usi ng fiscal poli cy to absorb some supply shocks,and j udi ci ous use of FX reserves to m

11、ai ntai n a stable currency.Ami dst some fiscal consoli dati on targeted i n FY2023-24(Apri l 2023 to March 2024),the government re-allocated spendi ng towards capex by cutti ng subsi di es,and servi ces growth i n I ndi a conti nued to boom wi th servi ces exports and remi ttance i nflows provi di

12、ng cushi on to the current account defici t.We expect much of the same to conti nue i n 2024.We expect real GDP growth i n I ndi a to remai n stable at 6.3%yoy(Exhi bi t 1),from our esti mate of 6.4%growth i n 2023,but i t i s li kely to be a tale of two halves.Subsi di es and transfer payments as w

13、e head i nto the general electi ons i n Q2 2024 wi ll li kely be the growth dri ver i n the first half.Post-electi ons,we expect i nvestment growth to re-accelerate,especi ally from the pri vate si de.Whi le we expect the government to conti nue i ts focus on capi tal spendi ng,gi ven the medi um-te

14、rm fiscal consoli dati on path,the rate of growth i n capex wi ll li kely decrease from next fiscal year.Ri sks around the growth outlook are evenly balanced i n our vi ew wi th the mai n domesti c ri sk emanati ng from poli ti cal uncertai nty wi th electi ons approachi ng i n Q2 2024.Repeated supp

15、ly shocks along wi th stable growth are li kely to keep i nflati on above the central poi nt of the RBI s target of 4.0%i n 2024.We forecast headli ne CPI i nflati on to decli ne to 5.1%yoy(average)i n 2024(Exhi bi t 2),above the RBI s and consensus forecast of 4.7%yoy,from an esti mated 5.7%i n 202

16、3.We expect the government to i ntervene through subsi di es or other measures to keep a li d on food pri ces i n an electi on year.Whi le core goods i nflati on decli ned i n li ne wi th our expectati on i n 2023,the decli ne i n core servi ces i nflati on took us by surpri se,especi ally gi ven re

17、si li ent growth.Goi ng forward we expect core i nflati on to decli ne to 4.5%yoy(average)i n 2024 from an esti mated 5.1%i n 2023.Exhibit 1:We expect t he Indian economy t o grow at 6.3%yoy in CY24 20222023F2024F20232024F2025FReal GDP%yoy6.76.46.37.26.26.5Private consumer expenditure%yoy8.15.46.57.

18、57.05.5Gross fixed investment%yoy10.38.26.211.46.47.5InflationCPI inflation%yoy6.75.75.16.75.64.9Core CPI inflation%yoy6.15.14.56.14.64.6Core ex PDGS%yoy6.15.14.56.14.64.6ExternalCurrent account%of GDP-2.5-1.3-1.9-2.2-1.5-2.1OtherRepo Rateend of period,%6.256.506.256.506.506.00USD/INRend of period,l

19、evel83.083.082.082.284.081.9Central Govt Fiscal Deficit%of GDP-6.4-5.9-5.4Core CPI inflation is Headline excluding food,fuel and light inflationCore ex PDGS is Core CPI inflation excluding petrol,diesel,gold and silver.*Fiscal Year 2024 refers to April 2023 to March 2024Calendar YearWe expect a 25bp

20、 cut each in Q4 CY 2024 and Q1 CY 2025 taking the repo rate to 6.0%.Fiscal Year*Source:Haver Analyt ics,Goldman Sachs Global Invest ment Research14 November 2023 2Gol dman SachsIndia 2024 Out l ookSomewhat elevated i nflati on relati ve to target wi ll li mi t the room for monetary easi ng i n our v

21、i ew we forecast the RBI to cut only 50bp to 6.00%by early 2025(25bp each i n Q4 2024 and Q1 2025)(Exhi bi t 2).Our US economi cs team forecast the easi ng cycle to start i n Q4 2024,and forecast a hi gher neutral rate for the Fed at 3.50 3.75%,above the central banks current esti mates of long-run

22、sustai nable levels.The“hi gher-for-longer”global scenari o and elevated i nflati on domesti cally wi ll mean conti nued hawki sh gui dance and ti ght banki ng system li qui di ty from the RBI unti l the MPC feels confident about i nflati on ali gni ng wi th the 4.0%target.Exhibit 2:Inflat ion has m

23、ost likely peaked,but we forecast a long pause from t he RBI 012345678012345678202020212022202320242025Headline CPI(yoy)Core CPI(yoy)policy repo ratePercentPercentCore Inflation means headline inflation excluding Food,Fuel&Light inflation.*Shaded area denotes the official inflation target of 4%+/-2%

24、Source:CEIC,Goldman Sachs Global Invest ment ResearchOur commodi ty strategi sts expect oi l pri ces to ri se to$92/bbl i n 2024 vs.$83/bbl i n 2023(YTD average).Thi s,along wi th a mi ld growth slowdown among I ndi as export partners,and relati vely resi li ent domesti c growth i s li kely to i ncr

25、ease the current account defici t to 1.9%of GDP($75bn)i n 2024 vs.1.3%of GDP($45bn)i n 2023.Whi le servi ces net exports have peaked(as a share of GDP)i n our vi ew,i t wi ll conti nue to cushi on a wi de goods trade defici t i n 2024(Exhi bi t 3).Macro-economi c resi li ence i n recent years ai ded

26、 I ndi as i nclusi on i n the JPM GBI-EM Global Di versi fied I ndex(begi nni ng June 2024),and could prompt passi ve i nflows of around USD 25-30bn over the scale-i n peri od.Wi th I ndi a benefiti ng from regi onal supply chai n di versi ficati on,we expect conti nued di rect i nvestment i nflows,

27、although capi tal i nflows wi ll li kely remai n muted globally i n a hi gh i nterest-rate envi ronment.Overall,we thi nk the current account defici t should be comfortably funded next year.14 November 2023 3Gol dman SachsIndia 2024 Out l ookExhibit 3:We forecast current account deficit at 1.9%of GD

28、P in 2024 Forecast-0.5-1.5-2.4-1.11.3-1.1-2.5-1.3-1.9-12-8-4048-12-8-4048201620172018201920202021202220232024Services Trade BalanceSecondary IncomeMerchandise Trade BalancePrimary IncomeCurrent AccountPercent of GDPPercent of GDPNOTE:Primary income refers to receipt or payment of income from investm

29、ents.Secondary income refers to remittances.ForecastSource:CEIC,Goldman Sachs Global Invest ment ResearchNearly$600bn of FX reserves should conti nue to allow the RBI to i ntervene promptly on both si des i n the FX market and keep the USD/I NR exchange rate stable.We expect the USD/I NR to hover ar

30、ound 83.0 84.0 over the next three-si x months,and expect i t to appreci ate sli ghtly to 82.0 over a 12-month hori zon.Thi s i s dri ven by our global FX teams expectati on of a softer broad USD by then,should the Fed start the easi ng cycle by Q4 2024,as our US economi cs team expects.Growt h:From

31、 government t o privat e sect or Consumpt ion:Driven by subsidies around elect ions Real pri vate consumpti on growth goi ng i nto the general electi ons has been mi xed(Exhi bi t 4),wi th the growth rate generally ri si ng a year before electi ons but falli ng subsequently as we approached the elec

32、ti on date.Post the general electi ons,consumpti on growth decli ned on balance except i n 2004.Wi th the general electi ons approachi ng i n Q2 2024,we have already seen i ncreased allocati on towards the rural employment program,hi gher cooki ng gas subsi di es and an extensi on of the food subsi

33、dy program from the central government,apart from a spate of fiscal outlays from state governments before the state electi ons i n Nov-Dec 2023.Goi ng forward i n 1H-2024,we expect consumpti on growth to be dri ven by subsi di es and transfer payments.Our analysi s of spendi ng patterns of the gover

34、nment goi ng i nto the last three electi on cycles are consi stent wi th thi s vi ew-subsi di es i ncreased from around three quarters before the electi ons as compared to the expendi ture i n the same peri od i n the previ ous 3 years(Exhi bi t 5).14 November 2023 4Gol dman SachsIndia 2024 Out l oo

35、kOverall,we expect real consumpti on growth to average around 9%yoy i n 1H 2024 dri ven by i ncreased subsi di es ahead of the electi ons.I n 2H 2024,we expect Exhibit 4:Consumpt ion growt h on balance declined aft er t he elect ions except in 2004 Exhibit 5:We have t ypically seen an increase in su

36、bsidy spending going int o t he elect ions-20-10010203040-20-10010203040-6-5-4-3-2-10123456Range2004200920142019CurrentPercent change qoq sa,relative to the election quarterConsumption qoq sa growth change,relative to election Percent change qoq sa,relative to the election quarterQuarter before/afte

37、r electionsNote:i)Covid-19 related outliers are removed from the 2019 line,ii)Current line is rebased to 0 in the current quarter,i.e.June 2023050100150200050100150200200920142019Election yearPrevious 3 years averagePercent change yoyPercent change yoyGrowth rate is major subsidies 9 months before t

38、he electionsNote:i)For the election in 2009,the growth in the election year spend has been comparedwith the growth in spend in 2008 only due to unavailability of past data.ii)For example in 2019,we have taken the growth in the total subsidy spend from October 2018-March 2019 vs October 2017-March 20

39、18.Source:CEIC,Goldman Sachs Global Invest ment ResearchSource:CEIC,Goldman Sachs Global Invest ment ResearchElecti on season gets underway i n Indi a The electi on season i n I ndi a has ki cked-off thi s month wi th five sub-nati onal electi ons,culmi nati ng wi th the nati onal(general)electi ons

40、 scheduled for Apri l-May 2024.The outcomes of these electi ons wi ll be keenly watched by i nvestors from the standpoi nt of economi c reforms and/or poli cy conti nui ty.Earli er thi s year,28 opposi ti on parti es came together to form the I ndi an Nati onal Developmental I nclusi ve Alli ance(I.

41、N.D.I.A.)to contest the 2024 electi ons agai nst the ruli ng NDA,led by the BJP.Polls suggest that I.N.D.I.A.s posi ti on has i mproved materi ally over the last year,although the NDA has mai ntai ned acomfortable lead.Our analysi s of margi ns of vi ctory i n the previ ous two electi ons reveal tha

42、t the BJP won more seats wi th a closer margi n(as calculated by vote share)i n 2019 than i n 2014(Exhi bi t 6),whi le the I NC won a greater share of the seats wi th a hi gher margi n i n 2019 vs.2014.Exhibit 6:The BJP won more seat s wit h a t hin margin of 0-5%vot e share in 2019 t han in 2014*No

43、te:The NDA alliance in 2024 comprises of 35 parties currently holding 334 seats in the Lok Sabha4142363338413316128344757420102030405060700102030405060700-55-1010-1515-2020-2525-3030-3535-4040-4545-5050BJP(total=303)Others(total=33)NDA-2024 seat distribution by margin in 2019Number of seatsNumber of

44、 seatsMargin of victory(vote share%)30425338493120963656742110102030405060700102030405060700-55-1010-1515-2020-2525-3030-3535-4040-4545-5050BJP(total=282)Others(total=32)NDA-2024*seat distribution by margin in 2014Number of seatsNumber of seatsMargin of victory(vote share%)Source:CEIC,Goldman Sachs

45、Global Invest ment Research14 November 2023 5Gol dman SachsIndia 2024 Out l ookconsumpti on growth to slow as the boost from subsi di es wanes post general electi ons and forecast consumpti on growth to reduce to around half of 1H growth.Invest ment cycle:From government t o privat e I n our earli e

46、r analysi s we have shown that over the last 25 years,i n real terms,households and pri vate corporati ons were the mai n dri vers of i nvestment i n I ndi a and together accounted for around 75%of overall i nvestment.Publi c sector i nvestment accounted for about 25%of GDP as of 2022.The real i nve

47、stment trend growth upti ck i n recent years was li kely due to an i ncrease i n publi c capex.The central government i ncreased capex by 33%CAGR over the last three years to 3.3%of GDP i n FY24(18-year hi gh)from around 1.5%of GDP on average between FY18 to FY20(Exhi bi t 7).Gi ven the fiscal conso

48、li dati on targets of the central government we thi nk thi s growth rate wi ll come off to average around nomi nal GDP growth rates or lower goi ng forward.1We saw a further deveragi ng i n the overall non-financi al sector i n FY 2023,but di d not show i t i n the chart as the sample i s restri cte

49、d to 5296 non-financi al sector compani es.Exhibit 7:Cent ral government has increased capex in recent years 0123401234FY16FY17FY18FY19FY20FY21FY22FY23FY24Transfer to StatesOther budgetary supportDefenceRailwaysRoads and Highways%of Nominal GDP%of Nominal GDPNOTE:Years are in fiscal years.FY2024 run

50、s from April 2023 to March 2024.Before FY16,transfer to states is captured in other budgetary support.Gross Budgetary Support for Capital Spending:Source:CEICWe have mai ntai ned si nce last year that the supply si de condi ti ons look conduci ve for an i nvestment cycle recovery.We remai n opti mi

51、sti c that the pri vate i nvestment cycle may see renewed vi gor i n 2H-2024 after the electi on related uncertai nty.Separately,as MNCs re-draw thei r supply chai ns for more reli able sourci ng and manufacturi ng,I ndi a presents an attracti ve opportuni ty.Over the long term,a large consumer mark

52、et also presents a favorable backdrop for the“Make i n I ndi a”i ni ti ati ve.Strong pri vate sector balance sheets Balance sheet stress of I ndi an corporates has reduced materi ally,and should set them up for a capi tal expendi ture cycle goi ng forward.Manufacturi ng compani es have deleveraged(E

53、xhi bi t 8)wi th leverage rati os at a 16-year low,whi le servi ces compani es have also reduced leverage after a sharp i ncrease post-pandemi c.For the overall corporate sector,leverage i s now at a si xteen-year low1.Large pri vate and publi c sector banks have thei r Ti er 1 capi tal adequacy rat

54、i o(Ti er 1 rati o)14 November 2023 6Gol dman SachsIndia 2024 Out l ookwell i n excess of the 9.5%regulatory norms whi ch has enabled banks to grow balance sheets as credi t demand revi ved post pandemi c(Exhi bi t 9).We see adequate capi tal buffer and enough headroom to start a lendi ng cycle i n

55、2024,as i ndustri al credi t demand grows.I n household i nvestments,real estate consti tutes the largest share and a decli ne i n household i nvestments si nce 2012 was mai nly due to a decli ne i n real estate i nvestment,whi ch was li kely the result of a decli ne i n house pri ce i nflati on and

56、 ti ghter credi t condi ti ons due to the NBFC cri si s2 duri ng that peri od.Wi th i nventory-sales rati o at the lowest i n 13-years(Exhi bi t 10)and house pri ce i nflati on starti ng to i ncrease after a long peri od of softness(Exhi bi t 11),we expect household i nvestments to remai n buoyant o

57、ver 2024.Overall,the favorable supply si de condi ti ons are li kely to ai d i nvestment growth over the next several years.Clearly,the Make i n I ndi a poli cy i f successful provi des upsi de ri sk to i nvestment outlook over the medi um term.I n 1H 2024 we expect i nvestment growth to slow down t

58、o 5.5%of GDP dri ven by a slowdown i n growth i n publi c capex and subsequently rebound to 7.2%yoy i n 2H 2024 wi th the electi on related uncertai nty 2Non-banki ng financi al compani es(NBFC).I n June 2018,I L&FS defaulted for the first ti me on repayment of commerci al paper and i nter-corporate

59、 deposi ts whi ch led to a seri es of defaults by other NBFCs.Exhibit 8:Manufact uring companies have de-leveraged Exhibit 9:Major bank balance sheet s are well capit alized 0.00.30.60.91.21.50.00.30.60.91.21.5200620082010201220142016201820202022 Non-financial corporates Manufacturing Companies Serv

60、ices(other than financial)Debt to Equity RatioDebt to Equity RatioNOTE:*Years are in Fiscal year.Fiscal year 2022 refers to April 2021 to March 2022.Debt to equity ratio is calculated by dividing aggregate debt of companies in the sample by aggregate shareholders equity of these companies.0510152025

61、0510152025KotakICICIHDFCAxisState Bank ofIndiaPre-GFC(FY07)Pre-taper tantrum(FY13)Pre-NPA peak in India(FY17)Current(4QFY23)NOTE:Years are in Fiscal year.Fiscal year 2023 refers to April 2022 to March 2023.NPA stands for non-performing assets.*Tier 1 capital ratio refers to share capital and other c

62、ore reserves as a proportion of the risk-weighted assets of a bank,and is used as a fair representation of balance sheet strength and the ability to cover loan losses.PercentPercentTier 1 Capital Ratio*:Source:CMIE,Goldman Sachs Global Invest ment ResearchSource:Goldman Sachs Global Invest ment Rese

63、archExhibit 10:Invent ory t o sales rat io t he lowest in t he last 13 years Exhibit 11:Housing price inflat ion has bot t omed out 1.01.52.02.53.03.54.01.01.52.02.53.03.54.0Jun-09Jun-11Jun-13Jun-15Jun-17Jun-19Jun-21Jun-23Inventory/Sales RatioRatioRatio05101520253005101520253011121314151617181920212

64、223RBIs Housing Price IndexPercent change,yoyPercent change,yoyHousing Prices:Source:PropEquit y,Goldman Sachs Global Invest ment ResearchSource:Haver Analyt ics,Goldman Sachs Global Invest ment Research14 November 2023 7Gol dman SachsIndia 2024 Out l ookbehi nd us.Inflat ion:Supply shocks put a flo

65、or on core Headli ne i nflati on decli ned to average 5.7%yoy(GSe)i n 2023 from 6.7%i n 2022,ai ded by lower oi l pri ces and monetary ti ghteni ng by the RBI.Food i nflati on remai ned relati vely muted i n the first half of 2023 but wi tnessed a steep i ncrease i n Q3(Exhi bi t 12)on the back of u

66、neven monsoons and supply si de bottlenecks.Thi s caused headli nei nflati on to exceed the upper end of the RBI s target i n Q3,even as core i nflati ondecli ned,led by core goods i nflati on as WPI manufacturi ng i nflati on decli ned and coreservi ces i nflati on also decli ned led by a decli ne

67、i n housi ng rent i nflati on(Exhi bi t 13).The government acti vely i ntervened(Exhi bi t 14)wi th fiscal,tari ff and non-tari ff measures to mi ti gate the i mpact of hi gh i nflati on on the consumer:a)The government amended the export poli cy to prohi bi t exports of ri ce,and stoppedreleasi ng

68、subsi di zed ri ce for ethanol producti on after retai l pri ces i ncreased i n June-July.b)Announced two addi ti onal cooki ng gas subsi di es:i)I NR 200/cyli nder for all users,andi i)I NR 300/cyli nder for all users under the exi sti ng government cooki ng gas scheme forpoor women(Uj j wala3 user

69、s).c)The government extended i ts food subsi dy scheme to 813mn benefici ari es beyond i tsdeadli ne of 31st December 2022,for five years.3Pradhan Mantri Uj j wala Yoj ana(PMUY)i s a scheme from the Mi ni stry of Petroleum&Natural Gas for provi di ng LPG connecti ons to women from Below Poverty Li n

70、e(BPL)households.The scheme was launched on 1st May 2016 i n Uttar Pradesh and as of 1st March 2023 there are around 96mn PMUY benefici ari esExhibit 12:Food inflat ion spiked in Q3 2023 driven by veget able prices Exhibit 13:Core ex PDGS inflat ion st eadily declined in 2023-4-20246810121416-4-2024

71、6810121416Jan-23 Feb-23 Mar-23Apr-23 May-23 Jun-23Jul-23Aug-23 Sep-23 Oct-23VegetablesCerealsProteinsSpicesOils and FatsOthersCPI FoodPercentage PointsPercentage PointsCPI Food YoY Contributions:NOTE:Proteins include meat and fish,eggs,milk and pulses.024681012024681012201220132014201520162017201820

72、192020202120222023Headline CPICore ex PDGSPercent change,yoyConsumer price Index:Percent change,yoyCore ex PDGS inflation is headline inflation excluding food,fuel,petrol,diesel,gold and silver inflation.*Shaded area denotes the official inflation target of 4%+/-2%Source:CEIC,Goldman Sachs Global In

73、vest ment ResearchSource:Haver Analyt ics,Goldman Sachs Global Invest ment Research14 November 2023 8Gol dman SachsIndia 2024 Out l ookThe export ban on ri ce helped cool pri ces and i mprove i nventori es(Exhi bi t 15).Goi ng forward,we see some upsi de ri sk to cereals i nflati on,gi ven the defic

74、i ent monsoons thi s year may i mpact the wi nter(Rabi)crop harvest,because of water reservoi r levels bei ng 21%lower i n 2023 vs.2022 and water from reservoi rs i s used for culti vati on of the wi nter crop.Si mi larly,pulses(legumes)sowi ng i n the summer(Khari f)season was 8%less compared to la

75、st year and i s li kely to affect producti on and keep pri ces elevated.Further,uneven monsoon di stri buti on has already i mpacted the arri vals of stocks of oni ons i n September and October whi ch has led to an i ncrease i n oni on pri ces.Putti ng all thi s together we forecast food i nflati on

76、 at 7.0%yoy i n 1H 2024 and expect i t to decli ne to Exhibit 14:Measures t aken by government t o t ackle inflat ion ItemWeight in CPI(%)DateMeasuresCereals&products9.7November 5,2023Extended the food subsidy scheme to 813mn beneficiariesbeyond its deadline of 31st December 2022,for five years.Augu

77、st 9,2023Offloaded an additional 2.5mn tons of rice from its stocks to contain pricesAugust 26,2023 Imposed 20%export duty on parboiled rice effective till October 15,2023August 27,2023Restricted exports of certain kind of rice(Basmati)valued below$1200/MT.The government had earlier also banned expo

78、rt of another variety of rice in JulyOctober 6,2023Extended the 20%export duty on parboiled rice to March 31,2024October 24,2023Lowered the minimum export price for a certain kind of rice(basmati)to USD 950/tonneEdible Oil2.9June 2,2023Directed the industry to cut edible oils MRP by INR 8-12 per lit

79、re as global prices dropTomato0.6July 20,2023Reduced price of subsidised tomato to INR 70 per kgAugust 9,2023Offloaded an additional 5mn tons of wheat from its stocks to contain price increasesSeptember 14,2023Sets 2000 tonnes as the quantity of wheat that traders,wholesalers and supermarkets can st

80、ore to boost supplies in the retail marketsNovember 9,2023Allocated 0.25mn ton of wheat for providing subsidised wheat at INR 21.5/kgSugar1.1October,18 2023Extended sugar export restrictions beyond October 2023August 29,2023Announced a subsidy of INR 200/cylinder of cooking gas to eligible benficiar

81、ies under the governments affordable cooking fuel program for poor women(Ujjwala Yojna)October 4,2023Announced an additional subsidy of INR 100 taking the total subsidy to INR 300 for the eligible benficiaries under the governments affordable cooking fuel program for poor women(Ujjwala Yojna)FoodOth

82、ersCooking Gas1.3Rice4.4Wheat2.6Source:News Art icles,Goldman Sachs Global Invest ment ResearchExhibit 15:Rice st ocks have improved in 2023 0102030405060708001020304050607080201520162017201820192020202120222023WheatRiceInventories as of September each yearmn tonmn tonSource:CEIC,Goldman Sachs Globa

83、l Invest ment Research14 November 2023 9Gol dman SachsIndia 2024 Out l ook4.2%yoy i n 2H 2024.Overall,we forecast food i nflati on to be at 5.6%yoy i n 2024.Core i nflati on to decli ne to 4.5%i n 2024 The RBI s measure of core i nflati on4 has averaged around 6%yoy(Exhi bi t 16)i n 2022,and decli n

84、ed to 4.7%yoy i n Q3 2023 dri ven by a decli ne i n both core goods and servi ces i nflati on from 7.2%yoy(2022 average)and 5.1%yoy(2022 average)respecti vely to 5.3%yoy and 4.0%yoy i n Q3 2023.We expect core goods i nflati on to bottom out at 4.5%yoy i n Q1 CY24 and i ncrease towards 5.0%yoy by Q4

85、as WPI manufacturi ng i nflati on has bottomed out(Exhi bi t 17).Whi le core goods i nflati on decli ned i n li ne wi th our expectati on 2023,the decli ne i n core servi ces i nflati on took us by surpri se,dri ven by an unexpected decli ne i n housi ng i nflati on.Goi ng forward we expect core ser

86、vi ces i nflati on to i nch hi gher from i ts current levels of 3.6%yoy to around 4.5%yoy i n 2H 2024.Putti ng thi s together,we forecast overall headli ne i nflati on at 5.1%yoy(average)i n CY24 wi th food i nflati on at 5.6%yoy,RBI core i nflati on at 4.5%yoy,and fuel i nflati on at 5.6%yoy(Exhi b

87、i t 18).4RBI Core i nflati on:Headli ne i nflati on excludi ng food,fuel and li ght.Fuel i nflati on:cooki ng fuel,gas and kerosene.RBI core i nflati on i ncludes petrol and di esel(under transportati on i nflati on).Exhibit 16:RBI core inflat ion has declined t o around 4.2%Exhibit 17:We expect cor

88、e goods inflat ion t o inch higher t o 5.0%by t he end of CY24 as WPI manufact uring inflat ion has bot t omed out -1012345678910-1012345678910Apr-20Oct-20Apr-21Oct-21Apr-22Oct-22Apr-23Oct-23Gold and SilverPetrol and DieselCore ServicesCore Goods RBI CorePercentage PointsPercentage PointsRBI Core Yo

89、Y Contributions:NOTE:RBI core inflation refers to headline inflation excluding food,fuel and light,but includes petrol and diesel(under transportation inflation).Fuel inflation refers to cooking fuel,gas and kerosene.-4-20246810121401234567891718192021222324CPI core goods(6m lag)WPI manufacturing(RH

90、S)Percent change,yoyPercent change,yoySource:Goldman Sachs Global Invest ment ResearchSource:CEIC,Goldman Sachs Global Invest ment Research14 November 2023 10Gol dman SachsIndia 2024 Out l ook5real poli cy rate here equals central banks nomi nal poli cy rate-headli ne CPI i nflati onExhibit 18:We fo

91、recast headline CPI inflat ion at 5.1%yoy(average)in CY24 01234567890123456789CY22Q4CY23Q1CY23Q2CY23Q3CY23Q4CY24Q1CY24Q2CY24Q3CY24Q4Core GoodsCore ServicesFoodFuelPDGSHeadlineRBI forecastPercentage pointsPercentage pointsForecastNOTE:Shaded area denotes the official inflation target of 4%+/-2%.PDGS

92、refers to petrol,diesel,gold and silver.Source:Goldman Sachs Global Invest ment ResearchMonet ary policy:“Hawkish Hold”in a“Higher for Longer”world Somewhat elevated i nflati on relati ve to target wi ll li mi t the room for monetary easi ng from the RBI,i n our vi ew.Our US economi cs team forecast

93、 the easi ng cycle to start i n Q4 2024,and forecast a hi gher neutral rate for the Fed at 3.50 3.75%,above the Feds current esti mates of long-run sustai nable levels.The“hi gher-for-longer”global scenari o and elevated i nflati on domesti cally wi ll mean conti nued“hawki sh gui dance”and ti ght b

94、anki ng system li qui di ty from the RBI unti l the MPC feels confident about i nflati on ali gni ng wi th the 4.0%target.I n our base case we dont see the RBI hi ki ng ei ther-low external vulnerabi li ty and our global vi ew of a dollar peak by 2H 2024 wi ll gi ve the RBI more degrees of freedom t

95、o operate monetary poli cy wi thout aggravati ng external ri sks.We forecast the easi ng cycle i n I ndi a to be i n three stages:1)verbal gui dance that i nflati on i s ali gni ng to the RBI s target of 4.0%on a sustai nable basi s,2)change poli cy stance from Removal of Accommodati on to Neutral o

96、r Accommodati ve and 3)cut poli cy rate from the current level of 6.50%by 25bp.We thi nk that steps 1 and 2 can happen together or i n ei ther order i n Q3 or Q4 CY24,and step 3 wi ll li kely happen only by Q4 CY24.Overall we forecast the RBI to cut repo rates by only 50bp to 6.00%by early 2025(25bp

97、 each i n Q4 2024 and Q1 2025).Thi s would leave the real poli cy rate at 1.3%by Q1 20255(Exhi bi t 20).14 November 2023 11Gol dman SachsIndia 2024 Out l ookExhibit 19:St ages of monet ary policy easing by t he RBI StageExpected actionLikely Timeline1Verbal guidance-dovish commentary in policy state

98、ment and/or minutesStart from Q3/Q4 CY242Liquidity easingStart from Q3/Q4 CY243Policy repo rate cutQ4 CY24Exhibit 20:We expect t he RBI t o cut t he repo rat e by 25bp in December 2024 policy meet ing,followed by 25bp in February 2025 2345678910234567891007 08 09 10 11 12 13 14 15 16 17 18 19 20 21

99、22 23 24 25Fitted Taylor ruleActualGS ForecastPercentPercentRBI policy repo rate:Shaded area denotes+/-1 standard deviation bandsSource:Goldman Sachs Global Invest ment ResearchBanki ng system li qui di ty i s a monetary poli cy tool Short-end rates have remai ned ti ght wi th the wei ghted average

100、call rate(WACR)tradi ng near the margi nal standi ng faci li ty(MSF)rate whi ch i s the upper end of the li qui di ty adj ustment faci li ty corri dor(Exhi bi t 21).We expect the RBI to keep li qui di ty ti ght i n-li ne wi th thei r monetary poli cy stance of“removal of accommodati on”i n a world o

101、f“Hi gher for Longer”rates.Li qui di ty di stri buti on i n the system has been recently skewed as i ndi cated by elevated borrowi ngs by some banks from the RBI at the MSF(whi ch i s the upper end of the li qui di ty adj ustment corri dor,25bp above the poli cy repo rate)whi le other banks are park

102、i ng substanti al amounts wi th the RBI under the standi ng deposi t faci li ty(or SDF,whi ch i s the lower end of the li qui di ty adj ustment corri dor,25bp below the poli cy repo rate).The RBI has been conducti ng open market operati on(OMO)sales,where the RBI sells government bonds i n the secon

103、dary market to manage li qui di ty.We expect thi s poli cy to conti nue and thi s,i n our vi ew,wi ll partly offset the i ncremental demand for bonds from FI I s due to I ndi as i ndex i nclusi on next year.14 November 2023 12Gol dman SachsIndia 2024 Out l ookThe pi vot towards subsi di es and welfa

104、re spendi ng goi ng i nto the electi ons i s li kely to Exhibit 21:Overnight rat es are t ight in t he banking syst em 3.04.05.06.07.03.04.05.06.07.0May-19Nov-19May-20Nov-20May-21Nov-21May-22Nov-22May-23Nov-23Policy rateWeighted average call money rate(5 DMA)PercentPercentNOTE:The shaded area repres

105、ents the policy corridor,where the upper end represents the MSF and the lower end represents the Reverse Repo or SDF rate.The corridor was increased during the pandemic.Weighted average call money rate is the effective rate.Source:Haver Analyt ics,Goldman Sachs Global Invest ment ResearchI n the mon

106、etary poli cy easi ng cycle,as the RBI eases li qui di ty overni ght rates would first come back from MSF to the poli cy repo rate,and decli ne further to the SDF dependi ng on the quantum of li qui di ty easi ng by the RBI.Thus even wi th only 50bp repo rate cuts,the RBI would have the opti on to e

107、ffecti vely deli ver 100bp of easi ng(50bp from repo+50bp from li qui di ty easi ng)i f requi red.Fiscal policy:Trade-offs and Const raint s As detai led earli er,the government has played an acti ve role i n absorbi ng the food pri ce shocks on the consumer and at the same ti me has also been able

108、to sustai n capi tal expendi ture growth at hi gher levels unti l now.I n addi ti on to the i ncremental subsi dy costs undertaken by the government thi s year to help control i nflati on,the government i n FY24 has already spent around I NR 636bn on the rural employment guarantee program of the ava

109、i lable I NR 600bn unti l September.As per our esti mates,goi ng by hi stori cal trends,spendi ng on the rural employment guarantee program could cost the government an addi ti onal I NR 450bn,taki ng the total spend on the program to around 0.4%of GDP(Exhi bi t 22).Exhibit 22:We est imat e spend on

110、 subsidies and rural employment program t o increase in FY24 compared t o budget est imat es 14.814.915.015.115.215.314.814.915.015.115.215.3Budgetestimates*MGNREGASpending*FoodPetroleumGS Estimates%of Nominal GDP%of Nominal GDPExpenditure upside in FY24 compared to budget estimatesFY24 runs from Ap

111、ril 2023 to March 2024.*GDP for FY24 is as per Budget estimates.*MGNREGA is a government employment rural program Major SubsidiesSource:CEIC,Goldman Sachs Global Invest ment Research14 November 2023 13Gol dman SachsIndia 2024 Out l ookconti nue,though gi ven the fiscal constrai nts(Exhi bi t 23)from

112、 the stock of debt(I ndi as publi c debt to GDP rati o i s above 80%,one of the largest i n EM),we dont expect the government to i ncrease the fiscal defici t.Thus,we thi nk that a decli ne i n publi c capi tal expendi ture(as a%of GDP)wi ll have to share the burden of fiscal consoli dati on,among a

113、 reducti on i n other current expendi ture.I n other words,the growth i n government capex seen i n the past few years cannot be sustai ned goi ng forward,i n our vi ew,as we detai led i n our earli er analysi s.Ext ernal:Low ext ernal vulnerabilit y t o cont inue On the external balances front,slow

114、er global economi c growth among tradi ng partners has i mpacted I ndi as goods export growth(Exhi bi t 24)i n 2023.The current account defici t,though,has been cushi oned by strong servi ces export growth(Exhi bi t 25)whi ch has held up despi te weak demand i n western economi es.Our commodi ty str

115、ategi sts expect oi l pri ces to ri se to$92/bbl i n 2024 vs.$83/bbl i n 2023(YTD average).Thi s,along wi th a mi ld growth slowdown among I ndi as export partners,and relati vely resi li ent domesti c growth,i s li kely to i ncrease the current account defici t to 1.9%of GDP($75bn)i n 2024 vs.1.3%o

116、f GDP($45bn)i n 2023.Whi le servi ces net exports have peaked(as%of GDP)(Exhi bi t 25)i n our vi ew,they wi ll Exhibit 23:India a regional and EM out lier on general government deficit PHPMYRCNYINRIDRKRWTHBTWDHUFTRYPLNCZKILSRUBRONZARCOPMXNBRLCLPPEN-10-8-6-4-202102030405060708090EM AsiaCEEMEALatAmGen

117、eral government fiscal balance*(%of FY GDP,2023)General government gross debt*(%GDP,2023)*General government fiscal balance and general government debt based on October IMF estimations;China general government balance based on GS estimates of China effective on-budget fiscal balance and government s

118、pecial bond issuance in 2023Source:Haver Analyt ics,Goldman Sachs Global Invest ment ResearchExhibit 24:Merchandise export s are weaker t han services export s Exhibit 25:Services export s have significant ly increased over t he last few years 406080100120140160180406080100120140160180Mar-20Sep-20Ma

119、r-21Sep-21Mar-22Sep-22Mar-23Sep-23Non-oilServicesIndex SA(2019 Average=100)Index SA(2019 Average=100)Exports:0246810120246810121617181920212223SoftwareBusinessTransportationTravelOthers%of GDP%of GDPServices Exports:NOTE:The spike in Q2 CY20 is due to Covid-19 induced contraction in GDP.Break-up of

120、services exports is available up to Jun 2023.Source:CEIC,Goldman Sachs Global Invest ment ResearchSource:CEIC,Goldman Sachs Global Invest ment Research14 November 2023 14Gol dman SachsIndia 2024 Out l ookconti nue to cushi on a wi de goods trade defici t i n 2024.The RBI has not been shy to use the

121、FX reserves that I ndi a accumulated duri ng the pandemi c to carry out FX i nterventi ons on both si des and arresti ng volati li ty i n the I NR(Exhi bi t 28).I t repleni shed part of the reserves i t had lost through most of 2022 by accumulati ng reserves from November 2022 to July 2023.I ndi as

122、spot FX reserves are currently at$590bn(i ncludi ng SDR and Gold)for the week endi ng November 3.I n our vi ew,the RBI s FX market i nterventi on i s li kely to conti nue goi ng forward as we expect i t to mop up any balance of payment surpluses and not let the I NR materi ally appreci ate agai nst

123、the dollar.Exhibit 26:We forecast Indias current account deficit at 1.9%of GDP in CY24 Amount($bn)202120222023F2024FCurrent Account-34-86-45-75(as%of GDP)-1.1-2.5-1.3-1.9Goods Trade Balance-177-274-249-294Oil Trade Balance-87-113-104-135Non-Oil Trade Balance-90-161-145-159Goods Exports402458428442Oi

124、l Exports54958796Non-Oil Exports348358339346Goods Imports579732677736Oil Imports141208191231Gold Imports56374240Non-Oil Non-Gold Imports382476440465Services Trade Balance103133148158Services Exports241309331354Services Imports138177183195Primary Income-38-42-40-42Secondary Income789796102Source:Gold

125、man Sachs Global Invest ment ResearchExhibit 27:We est imat e capit al account surplus t o more t han offset t he current account deficit Amount($bn)202120222023F2024FCurrent Account-34-86-45-75(as%of GDP)-1.1-2.5-1.3-1.9Goods Trade Balance-177-274-249-294Services Trade Balance103133148158Primary In

126、come-38-42-40-42Secondary Income789796102Capital Account100576179Foreign direct investment27361936Foreign portfolio flows6-192433Others(incl.Loans,banking capital etc)67401710Overall BoP deficit/surplus66-29164Source:Goldman Sachs Global Invest ment Research14 November 2023 15Gol dman SachsIndia 202

127、4 Out l ookMacro-economi c resi li ence i n recent years ai ded I ndi as i nclusi on i n the JPM GBI M global bond i ndex(begi nni ng June 2024),and could prompt passi ve i nflows of around USD 25-30bn over the scale-i n peri od.Wi th I ndi a benefiti ng from regi onal supply chai n di versi ficati

128、on,we expect conti nued di rect i nvestment i nflows,although capi tal i nflows wi ll li kely remai n muted globally i n a hi gh i nterest-rate envi ronment(Exhi bi t 30).Hi gher US i nterest rates may also mean less dollar fundi ng by I ndi an corporates(Exhi bi t 31).Despi te these headwi nds,we t

129、hi nk the current account defici t should be comfortably funded next year gi ven bond i nflows.Forex out look:USD/INR t o st ay range bound Nearly$600bn of FX reserves should conti nue to allow the RBI to i ntervene promptly on both si des i n the FX market and keep the USD/I NR stable.We expect the

130、 USD/I NR to hover around 83.0 84.0 over the next three-si x months,and expect i t to appreci ate sli ghtly to 82.0 over a 12-month hori zon.The I NR appreci ati on vi ew over the 12-month hori zon i s dri ven by our global FX teams expectati on of a softer broad USD by then,should the Fed start the

131、 easi ng cycle by Q4 2024,as our US economi cs team expects.Exhibit 28:Forex reserves improved aft er declining sharply since last year Exhibit 29:India has t he lowest ext ernal debt t o GDP among it s EM peers 01002003004005006007008000100200300400500600700800Jan-21Sep-21May-22Jan-23Sep-23Forwards

132、Spot FX ReservesNote:i)Latest spot data as of November 3,2023 ii)Forward FX reserve data as of September 2023.USD bnUSD bn0102030405060708001020304050607080IndiaPhilippinesIndonesiaBrazilMexicoThailandKoreaSouth AfricaMalaysiaChilePercentage of GDPPercentage of GDPExternal Debt to GDPSource:Haver An

133、alyt icsSource:Haver Analyt ics,Goldman Sachs Global Invest ment ResearchExhibit 30:Net FDI has fallen sharply from it s 2021 highs Exhibit 31:Ext ernal commercial borrowings(ECB)mat urit ies are skewed heavily in Q4 CY23 and Q1 CY24 0.00.40.81.21.62.02.4010203040506001 02 03 04 05 06 07 08 09 10 11

134、 12 13 14 15 16 17 18 19 20 21 22 23 24USD bn(LHS)Percent of NominalGDP(RHS)USD bnPercentNet Foreign Direct Investment:Note:i)Years are in Fiscal year.Fiscal year 2024 refers to April 2023 to March 2024.ii)FY24 Forecast024681012141618024681012141618 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2023 2024USD bnUSD bnUpcom

135、ing External commercial borrowing(ECB)Expiry*Based on monthly data on External commercial borrowing(ECB)applications released by RBI.Source:Haver Analyt ics,Goldman Sachs Global Invest ment ResearchSource:RBI14 November 2023 16Gol dman SachsIndia 2024 Out l ookWe note that for the I NR,although real

136、 rate di fferenti als6(Exhi bi t 32)are the narrowest i n many years(leavi ng asi de the start of the pandemi c peri od),I NR offers the best carry-to-vol among large EMs(Exhi bi t 33).6Di fference between real rates i n I ndi a and i n US,where real rate i s the di fference between central bank pol

137、i cy rate and CPI i nflati on.Exhibit 32:Real rat e different ial wit h t he US has declined Exhibit 33:The INR offers t he best carry-t o-vol versus t he USD among it s EM peers-8-6-4-202468-8-6-4-2024680809101112131415161718192021222324Real Rate Difference(India-US)NOTE:Indian real rate=India poli

138、cy rate-India CPI yoy inflation;US real rate=US Fed funds rate-US CPI yoy inflation.Real rates difference=Indian real rate-US real ratePercentPercent12-month carry to 3-month annualized volatility0.00.20.40.60.80.00.20.40.60.8INRCOPMXNBRLHUFRONZARPENIDRCLPPLNPHPCZKCarry-to-volCarry-to-vol12-month ca

139、rry to 3-month annualized realized volatility versus the USDSource:Haver Analyt ics,Goldman Sachs Global Invest ment ResearchSource:Goldman Sachs Global Invest ment Research14 November 2023 17Gol dman SachsIndia 2024 Out l ookDiscl osure Appendix Reg AC We,Santanu Sengupta,Arj un Varma and Andrew Ti

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