Investment bank Goldman Sachs today downgraded India's economic forecasts from 8 per cent to 7.6 per cent for Financial Year 2018-19. It, however, retained growth forecast for FY 2019-20 at 8.3 per cent. According to reports, the investment bank lowered the growth projection in the wake of multi-billion banking scam and warned that it could spark tighter regulation of the banking sector that would constrain credit growth.
Goldman Sachs' forecast came barely a week after US-based Fitch Ratings and World Bank both pegged India's GDP growth for FY 2018-19 at 7.3 per cent. Last week, Fitch in its Global Economic Outlook report said that the Indian economy would clock a growth rate of 6.5 per cent in current fiscal 7.3 per cent for FY 2018-19 and 7.5 per cent for FY 2019-20.
The World Bank projected a similar growth for next financial year. The World Bank in its India Development Update report said: "The GDP growth is projected to reach 6.7 per cent in 2017-18 and accelerate to 7.3 per cent and 7.5 per cent in 2018-19 and 2019-20 respectively." Both the reports came after India retained the world's fastest growing economy tag in October-December quarter with 7.2 per cent growth.
Fitch and World Bank reports explained what dragged the Indian economy, but neither of them mentioned the recent banking scam. However, Goldman Sachs fears that the PNB type fraud could invite further regulations therefore affecting credit flow in the economy. Such fear is not unfounded as after the PNB fraud, many analysts and economists have called for tighter norms to be put in place for big lending.
Earlier this week, Ruchir Sharma, head of the Emerging Markets Equity team at Morgan Stanley Investment, in an interview to a TV channel said that the biggest risk to India in 2018 is that 'we have regulatory overkill'.