US-based global investment bank Goldman Sachs Group Inc. expects India's economy to grow at 5.9% in calendar year 2023, dragged down by slowing consumer demand due to high interest rates.

Gross domestic product (GDP) may expand by 5.9% next year from an estimated 6.9% in 2022, Goldman Sachs economists wrote in a report.

This comes days after India's Consumer Price Index (CPI) based retail inflation fell to a three-month low of 6.77% in October, down from 7.41% in September 2022. Retail inflation, however, remained above the Reserve Bank of India's (RBI) upper tolerance band of 6% for the 10th consecutive month.

Meanwhile, domestic rating agency ICRA on Monday projected India's GDP growth in Q2 FY23 at 6.5%, higher than the Monetary Policy Committee's (MPC) September 2022 forecast of 6.3% for the quarter.

"The downsides arose from the mixed crop output trends revealed by the advance estimates of kharif production, adverse input cost movements for certain sectors with a higher fuel intensity, as well as the impact of the flagging external demand on non-oil merchandise exports," says Aditi Nayar, chief economist, ICRA.

The growth in manufacturing volumes, as indicated by the IIP data, in Q2 FY2023 was modest at 1.4% relative to the year-ago levels, dragged down by the weak external demand, and subdued domestic demand for consumer durables amidst elevated input costs and fuel inflation, the ratings agency says.

Earlier in November, Moody's Investors Service had slashed India's GDP growth projection for calendar year 2022 to 7% from 7.7% earlier due to weak rupee and high crude oil prices. "The downward revision assumes higher inflation, high-interest rates and slowing global growth will dampen economic momentum by more than we had previously expected," Moody's said in its Global Macro Outlook 2023-24.

The International Monetary Fund (IMF) too has cut India's economic growth in 2022 to 6.8% from 7.4% earlier. The financial agency, however, said the strong recovery in South Asia is expected to take a breather, with India's economy expanding at 6.8% in 2022, because of a weaker-than-expected recovery in the second quarter and subdued external demand. IMF's estimates show India's economy will grow by 6.1% in 2023, as external demand and a tightening in monetary and financial conditions weigh on growth.

Another major global financial institution Morgan Stanley has said India will become the third-largest economy by 2027 after the US and China on the back of favourable domestic policies and a focus on boosting investment and jobs. This will propel its GDP from $3.4 trillion currently to $8.5 trillion over the next decade.

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