Goldman Sachs hikes India’s GDP growth forecast

International benchmark Brent crude futures for August were 3.2% lower at $72.83 a barrel on Friday.

“While the fuel price hikes already announced will continue to feed through into inflation over the coming months, the lower oil price path suggests that the risk of additional pass-through has diminished materially,” Goldman Sachs said.

The firm said lower crude oil prices have also been accompanied by a decline in petrochemical product prices.

“Although the earlier increases in polymer price are still likely to lift core goods inflation in the near term, we now expect the impact to be limited (vs. our earlier expectations), with a lower likelihood of incremental price increases across the core goods basket,” it said.

Reflecting the lower oil price assumptions and reduced manufactured goods inflation pressures, Goldman Sachs lowered its core goods inflation forecast for CY26 and FY27 by 30 basis points and 50 bps each to 3.2% and 4.1% respectively.

“Going forward, we expect consumption growth to moderate in Q2 and Q3 on earlier pump fuel price increases. We have also seen deterioration in the RBI’s urban and rural consumer confidence surveys (90.7 in May vs. 93.2 in April for the urban confidence index),” Goldman Sachs said.

However, the recent decline in oil prices reduces the likelihood of further fuel price increases, implying no further incremental drag on consumption growth from Q4, it said.

Further, the sharp correction in global urea prices is likely to limit the increase in the government’s fertilizer subsidy bill relative to our earlier expectations.

“Recent import tenders have cleared at substantially lower prices than those seen at the peak of the Middle East conflict, prompting the government to indicate that the FY27 fertilizer subsidy requirement could be reassessed. Together with lower oil prices, this should help alleviate near-term fiscal pressures,” it said.

Goldman Sachs said the Indian economy remained resilient through the West-Asia shock, as fiscal and quasi-fiscal measures absorbed much of the increase in energy costs and limited pass-through to consumers. As a result, consumption held up in March and April, even as investment somewhat softened amid supply disruptions and commercial LPG allocations remained around 70 per cent of pre-conflict levels, it said.