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India Business Forecast Report Q4 2008Published by: Business Monitor International Published: Jul. 28, 2008 - 59 Pages Table of Contents
AbstractPolitical Turbulence And Inflation To Weigh On GrowthIndia’s macroeconomic woes are mounting as global commodity prices have helped push inflationinto double digits amid growing indications of slowing growth. The sharp rise in inflation hascaused headaches for the Reserve Bank of India as well as the government. We envisage thecentral bank raising rates repeatedly in H 08, while the ruling Indian National Congress (INC)party will face an uphill struggle in the forthcoming national elections. Prime Minister ManmohanSingh hopes that the nuclear deal with the US will leave him with a legacy beyond his likely exit inthe upcoming national elections. However, while access to nuclear fuel and technology will helpIndia address its growing power shortages, infrastructure investment will remain a key priority forthe incoming government. The United Progressive Alliance (UPA) government is currently on the verge of collapse as thewithdrawal of Communist support places the government’s continued existence on the line. Thesurge in inflation in H108 has put the INC, the mainstay of the UPA, at a disadvantage comparedto the Bharatiya Janata Party (BJP). We thus see a BJP-led coalition government as the most likelyoutcome of the upcoming national elections. While such a government is likely to have a strongermandate for economic reform than the UPA, we see no immediate end to India’s shortcomings ingovernance, which continue to impede necessary investment and economic growth.Economic growth surprised on the upside in calendar year Q108 (Q4FY2007/08), coming in at animpressive 8.8% y-o-y, bringing full-year growth in FY2007/08 (April-March) to 9.0%. Nevertheless,we believe that India’s period of above-trend growth has now come to an end, and we areforecasting GDP to grow by 7.9% in FY2008/09. It is not inconceivable that growth will come ineven lower than this as the Reserve Bank of India looks set to tighten monetary policy sharply inthe second half of 008 in order to bring real interest rates back into positive territory and preventinflation expectations from becoming unanchored. Without more substantial improvements to its infrastructure, India will not be able to maintain itscurrent growth rate. The budget for FY2008/09 has singled out power, national highways and ruralinfrastructure as the main beneficiaries of government spending, but we believe public investment ininfrastructure will fall well short of India’s immense needs. We therefore welcome the government’splans to invite private players to participate in public infrastructure projects through public-privatepartnerships (PPP). However, we do not believe that India has, or will have any time soon, theadequate policy and regulatory framework to double the degree of annual infrastructure investmentfrom 4.5% to 9.0% of GDP over the next five years as targeted. Get Full Details About This Report >> |
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