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India Business Forecast Report Q1 2010

Published by: Business Monitor International

Published: Oct. 30, 2009 - 62 Pages


Table of Contents


Executive Summary
Strong Growth Outlook Despite Fiscal Concerns
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
The Naxalite Threat: Should Investors Be Worried?
New Delhi is preparing to launch a large-scale offensive against the Naxalite (communist rebel) insurgency in a bid to
prevent additional damage to the investment appeal of India’s poorer eastern regions.
Table: India Political Overview
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Q209 GDP Data Reinforces Forecast For Rocky Recovery
A host of macroeconomic data released on September 1 reinforces our view that India’s road to economic recovery will
be rocky and gradual.
table: ECONOMIC ACTIVITY
Fiscal Policy
India’s poor public finances are undoubtedly the weakest link in an otherwise favourable economic outlook.
table: FISCAL POLICY
Monetary Policy
‘Inflation V Growth’ Dilemma To Take Centre Stage
India’s central bankers will face a niggling policy headache in the months ahead, as a return of inflationary pressures
tests the Reserve Bank Of India’s ability to keep rates on hold.
table: MONETARY POLICY
Exchange Rate Policy
The Rupee’s Time To Shine
India will continue to be one of the leading lights in the Asian recovery story, pointing to serious upside potential for the
Indian rupee over the coming 12 months.
table: EXCHANGE RATE
Chapter 3: 10-Year Forecast
The Indian Economy To 2019
The Global Outperformer
India’s domestic demand-driven economy is poised to outperform its EM contemporaries over the next 10 years.
table: INDIA Lo ng-Term Macroeco nomic Forecasts
Chapter 4: Special Report
The World’s Fiscal Conundrum
Bleeding Red Ink Across The Globe
Table: WORLD GOVERNMENT EXPENDITURE INDICATORS
Table: WORLD GOVERNMENT REVENUE INDICATORS
Table: WORLD FISCAL BALANCE INDICATORS
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATINGS
Institutions
Infrastructure
Market Orientation
table: ASIA, ANNUAL FDI INFLOWS
TABLE: BMI TRADE RATINGS
Operational Risk
Table: TOP EXPORT DESTINATIONS
Chapter 6: Key Sectors
Retail
Executive Summary
Strong underlying economic growth, population expansion, the increasing wealth of individuals and the rapid
construction of organised retail infrastructure are key factors behind the forecast explosive growth in India’s
retail sales.
Table: Key Retail Sector Indicators, 2006-2013
Infrastructure
Executive Summary
India’s construction industry has been growing at a rapid rate over the previous years. According to data from the
national statistics organisation, the industry grew by an average of 17.3% per year between 2004 and 2008.
Table: India—Construct ion And Industry Data
Chapter 7: BMI Global Assumptions
Global Assumptions
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
Table: COMMODITY PRICES

Abstract

Despite the severity of the global downturn, and likely subdued growth trajectory of developedeconomies going forward, we believe that there is a lot to like about India’s economic story overthe long term. As we discuss later in the Q1 2010 Business Forecast Report, the country’s GDPmake-up (private consumption accounts for roughly 60% of GDP) and refusal to ramp up credit(unlike inflationary policies in China, for instance) strongly suggest to us that economic expansionwill be less sensitive to the global rebalancing, and much more resilient to double dip risks. Thereare risks, however. Short term, a poor monsoon has raised question marks over the sustainability ofrecovery. Longer term, a poor fiscal position, if left to deteriorate further, could weigh on economicgrowth potential down the road. Nevertheless, all factors considered, we remain of the view thatIndia will be a global growth outperformer, averaging real expansion of 7.1% per annum over thenext 10 years.

N ow that the economy is seemingly on the road to recovery, the authorities will turn their attentionback to political concerns closer to home. Heading the list is terrorism, but unlike last year, thefocus will be on domestic groups (rather than the external Islamist threat). New Delhi has launcheda large-scale crackdown on the Maoist insurgency sweeping across large swathes of rural easternIndia. The rebels, know as Naxalites, already enjoy pockets of control in the country’s poorer states,and we are concerned that a hardline strategy could provoke further rural unrest and incite greaterlevels of grassroots support for the movement.

O ne key theme detailed in our report is the outlook for monetary policy in the months ahead. Webelieve that India, along with South Korea, will be one of the first to kick off the tightening phase.

In our view, the central back will hold off hiking for the remainder of this year, before taking tighteningsteps in early 2010 (we are pencilling in a 25bps hike in the January meeting). This will, then,open the door to at least another 50bps worth of hikes during the course of the year, pushing thebenchmark repo rate to 5.50% by end-2010.

T he drive for public-private partnerships (PPPs) will continue to dominate India’s investment outlookin 2010. The government is keen to facilitate PPPs in the sector through easing regulations.

The National Highways Authority of India (NHAI), a government agency in charge of developinghighways, has announced plans to alter the revenue-sharing aspect of PPPs to allow the privatesector to collect tolls for longer without sharing revenue with the government. The NHAI is hopingto attract US$14bn of investment into the highways between 2009 and 2010, and is hoping thatchanging the concession agreement in this way will help. In addition, the government recentlyallowed 100% foreign direct investment (FDI) in construction.

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