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India Business Forecast Report Q4 2009

Published by: Business Monitor International

Published: Jul. 29, 2009 - 64 Pages


Table of Contents


Executive Summary
Macroeconomic Stability At Risk
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
New Government: Composition And Key Challenges
We view the unexpectedly strong election victory for the ruling United Progressive Alliance government in the
April-May national elections as a considerable positive for political stability and the potential for economic reform.
Table: Political Overview
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
FY2009/10 Growth Forecast Raised To 6.1%
We believe that robust domestic demand will limit the impact on India from the global recession, and have raised
our FY2009/10 (April-March) GDP growth forecast from 5.0% to 6.1%.
Table: ECONOMIC ACTIVITY
Fiscal Policy
Focus Of Budget Brings Upside Risks To Growth Forecast
We are now seeing growing upside risks to our 5.0% GDP growth forecast for FY2009/10 (April-March) as an
increased fiscal deficit will bolster domestic demand.
Table: FISCAL POLICY
Monetary Policy
Further Rate Cuts In Doubt, Despite Negative Inflation
Further rate cuts by the Reserve Bank of India are now in doubt in spite of wholesale price inflation lingering in
negative territory in Q309.
Table: MONETARY POLICY
Balance Of Payments
C/A Deficit To Narrow On Resilient Services Exports
We expect India’s current account deficit to narrow to US$16.5bn in FY2009/10 (April-March) from a US$29.8bn
shortfall in the preceding year on the back of lower costs for commodity imports and a resilient service sector
increasing overseas sales.
Table: CURRENT ACCOUNT
Chapter 3: 10-Year Forecast
The Indian Economy To 2018
Poor Governance And Infrastructure Holding Back Growth
India, together with China, is often heralded as one of the rising economic superpowers of the 21st century.
Table: Lo ng-Term Macroeco nomic Forecasts
Chapter 4: Special Report
The Fate Of ‘Chindia’
Overview
Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to
the downturn, and face a number of risks in the near term.
China And India SWOT
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
TABLE: ASIA, FDI ANNUAL INFLOWS
TABLE: BMI TRADE RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: Key Sectors
Autos
Executive Summary
BMI had forecast that the overall vehicle market would contract by around 8% in the fiscal year (ending March
31st).
Table: Autos Sector - Historic al Data & Forecasts
Mining
Executive Summary
We believes that the approval of a new NMP by the Indian cabinet in March 2008 should do much to boost FDI in
mining.
Table: India’s Mining Industry - Data and Forecast , 2006 - 2013
Chapter 7: BMI Global Assumptions
Global Assumptions
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
TABLE: DEVELOPED MARKET EXCHANGE RATES
TABLE: EMERGING MARKET EXCHANGE RATES

Abstract

Macroeconomic Stability At Risk

The unexpectedly strong mandate given to the ruling United Progressive Alliance government inthe April-May national elections is a considerable positive for political stability and the potentialfor economic reform. Nonetheless, the new government faces a daunting task in supporting theeconomy, boosting domestic security and improving relations with Pakistan and the US. We thereforebelieve that hopes for more ambitious economic reform measures are likely to be frustrated in theshort term. Indeed, the immediate focus of the government will be to support domestic demand andeconomic activity. The strong fiscal stimulus in the FY2009/10 (April-March) budget contributed toour decision to revise up our GDP growth forecast for the year from 5.0% to 6.1%.

We see potential for India to benefit greatly from the strong mandate given to ruling United ProgressiveAlliance (UPA) government in the April-May national elections. Indeed, the Indian National Congress(INC), which was previously hostage to support parties within and outside of the UPA coalition,now has the opportunity to implement the economic reform agenda of Prime Minister ManmohanSingh. However, more immediate priorities such as the implementation and subsequent rollbackof fiscal stimulus measures, the need to enforce government control in Naxalite rebel-controlledareas and to manage relations with Pakistan and the US, will most likely take precedence in theshort term.

We are expecting the election result and an improved global outlook to have a positive impact onprivate consumption and fixed capital investment and have therefore revised up our GDP growthforecast for FY2009/10 (April-March) from 5.0% to 6.1%. However, while strong fiscal and monetarystimulus will bolster growth in FY09/10 it has created risks for India’s credit rating and inflationexpectations in the medium-to-long term. We expect the government and central bank to startrolling back their stimulus measures once convincing evidence emerges that the domestic andglobal economy are on a better footing. As a consequence, we have kept our 6.4% GDP growthforecast for FY2010/2011 unchanged.

We maintain that without more substantial improvements to India’s rudimentary infrastructure, itwill not be able to achieve annual GDP growth of 8-9%, as targeted. The budget for FY2009/10(April-March) earmarks a significant amount of spending on rural infrastructure, but we believepublic investment in education and infrastructure will fall well short of India’s immense needs.

Nonetheless, we see potential for an increase in public-private partnerships (PPP), which haveshown some initial success. However, we do not believe that India has, or for that matter, willhave any time soon, the required policy and regulatory framework to double the degree of annualinfrastructure investment from 4.5% to 9.0% of GDP over the next five years as targeted

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