India to Grow 6.5% in 2013: Goldman Sachs

India’s economy could gather pace in the new year, putting behind a dismal year, Goldman Sachs said in a report released on Thursday, a day before the government releases the numbers for the July-September quarter that could be according to some estimates show a sub 5% growth.

Goldman Sachs said Indian economy is expected to expand 6.5% in 2013 thanks to an improvement in external demand and pick-up in reforms, and further accelerate to 7.2% in 2014.

Its upbeat assessment was based on “easing financial conditions, in part driven by some reduction in policy rates, a continuation of reforms boosting confidence, and a normal agricultural crop.”

The investment bank pegged 2012 growth at 5.4% and listed a number of measures to accelerate the economy.

“While allowing FDI in retail, the Goods and Services Tax, direct cash transfer of subsidies, and dedicated freight corridor will help, we believe further reforms on fiscal consolidation, financial liberalisation and infrastructure growth will be needed to sustain an improvement in trend growth,” the note said.

However, the investment bank warned that the near-term outlook was “difficult” because of weak growth, high inflation, and the twin deficits – fiscal and current account – that makes a quick recovery in investment cycle “unlikely”.

It expects inflation to moderate only from the fourth quarter of next calendar and warns that “elevated core inflation prevents a more aggressive near-term easing”.

“We forecast the Reserve Bank of India to cut policy rates by 50 bp in each of 2013, 2014 and 2015,” Goldman Sachs said.

The OECD had also in its bi-annual assessment said that India’s economy will recover to 6.5% in 2013 and 7.1% in 2014, though the two estimates may not be strictly comparable because of differences in methodology.

India’s official estimates peg growth in the current financial year in the range of 5.5% -6% while RBI has pegged GDP expansion at 5.8% in 2012-13 financial year.