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India Business Forecast Report Q2 2010

Published by: Business Monitor International

Published: Feb. 5, 2010 - 78 Pages


Table of Contents


Executive Summary
Policy Focus Shifts From Growth To Inflation
Chapter 1: Political Outlook
Domestic Politics
Pandora’s Box Of Troubles For The Government
The Indian government faces a considerable challenge in dealing with proposals to create the new state of Telangana
from Andhra Pradesh, and is already receiving calls for statehood from other regions.
Table: India Political Overview
Long-Term Political Outlook
The Test Of Rising Prosperity
While India’s 60-year old democracy has withstood the test of poverty, the coming decade will show whether it can
withstand the test of rising prosperity.
Chapter 2: Economic Outlook
Economic Activity
A Steady Return To Form In 2010
India’s domestic demand-driven economy continues to enjoy a steady cyclical recovery, and we are confident that
this growth momentum will spill over into FY2010/11 (April-March) despite official measures to tone down
accommodative policies.
Table: GDP CONTRIBUTION TO GROWTH
Monetary Policy
Pressure To Mount On RBI
The Reserve Bank of India (RBI) will be one of the first central banks in emerging Asia to kick off monetary
tightening in 2010, given the growing presence of inflationary pressures and better-than-expected economic
growth results.
Table: MONETARY POLICY
Balance Of Payments
Reserve Build-Up To Boost Rupee
India’s current account deficit will continue to widen in line with the domestic demand-driven economic recovery,
as well as subdued global appetite for the country’s software services.
Table: CURRENT ACCOUNT
Fiscal Policy
Crunch Time For The Public Finances
2010 will be a critical year for the Indian government to address the country’s precarious public finances.
Table: FISCAL POLICY
Investment Climate
Will India Join The Ranks Of The SWFs?
With US$254bn in reserves and no Sovereign Wealth Fund (SWF), India seems to single itself out, especially from
neighbouring China, which has one fourth of its total reserves in sovereign wealth funds, amounting to US$723.3bn.
Chapter 3: 10-Year Forecast
The Indian Economy To 2019
New Decade, Better Growth Prospects
India’s long-term growth dynamics are extremely constructive, with the economy expected to enjoy the positive effects
of increasing labour productivity, infrastructure build-out and a greater drive for reform.
Table: Lo ng-Term Macroeconomic Forecasts
Chapter 4: Special Report
Political Risk In The Next Decade
What To Expect In 2010-2019
Table: Countries Facing Major Leadership Succession In 2010-2019
Table: Countries At Risk Of Major Political Upheaval
Table: Countries At Risk Of Interst ate Conflict Or Heightened Bilateral Tension
Table: Cou ntries Faci ng Secessio nist Or Auto nomy Moveme nts , Insu rge ncies , Or Civil Wars
Table: Pivot al States
Chapter 5: Business Environment
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
TABLE: ASIA, ANNUAL FDI INFLOWS
TABLE: BMI TRADE RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: Key Sectors
Oil & Gas
Table: India Oil & Gas - Histo rical Data & Forecasts
Freight Transport
Table: Freight Transport Indicators, 2007-2014
Chapter 7: BMI Global Assumptions
Global Outlook
2010 Looking Rosier
TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH
TABLE: developed market exch ange rates
Table: Emerging Market Exch ange Rates
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES
TABLE: EMERGING MARKETS

Abstract

The remarkable speed and endurance of India’s economic recovery endorses our long-held bullishview on the country’s growth prospects. Despite the driest monsoon in almost 40 years - and thesobering effects of the global recession - Indian economic activity has held up spectacularly well,with key data points ranging from industrial production to foreign direct investment all bouncingback strongly. As we discuss in the Q210 Business Forecast Report, we expect the recovery momentumto spill over into 2010, with domestic demand providing the main engine for growth. Forpolicymakers, concerns will gradually shift from growth to inflation. Wholesale prices have startedto march upwards, reinforcing our view that the central bank will kick off monetary tightening beforelong. From a long-term perspective, India’s economy is expected to thrive over the next decade,on the back of increasing labour productivity, infrastructure build-out and a greater drive for reform.

N ow that the economy is seemingly on the road to recovery, the authorities will turn their attentionback to political concerns closer to home. Recent proposals for the creation of a new state ofTelangana (from Andhra Pradesh) starkly highlights the fragmented nature of the Indian society,as does the surge in Maoist uprisings in large swathes of eastern India. While we note that ruralIndia has played a vital role in driving headline economic growth in recent years, the governmentmust continue to prioritise alleviating absolute poverty and reducing income equalities in order tolay the foundations for sustainable economic and political development.

As we had suggested, the deficient monsoon has had less of an impact on agricultural output thanpreviously feared. Despite a decline in summer (kharif) crop production in Q309, it only accountedfor 18% of agriculture and mining output during the quarter. More significantly, the economy asa whole is less reliant on the agricultural sector than during previous business cycles. In nominalGDP terms, agriculture has fallen from around 50% in FY1950-51 to just 16.5% last fiscal year.In contrast, services have taken up a greater share of national output, accounting for 63% inFY2008/09 (from 35% in FY1950/51). Bottom line is that rural incomes in India, and by extensionspending, are no longer dictated by seasonal factors.

T he explosion of mobile phone users in India in recent years has been nothing short of remarkable.According to BMI’s industry team, total mobile phone subscribers are estimated to have exceeded500mn in 2009, from just 4mn at the turn of the decade, and this figure is projected to smash 1trn(or 90 users per 100 in habitants) by 2012. Such rapid expansion has allowed India to develop acompetitive advantage in the field of information technology and related services, which, of course,depend largely on high quality telecommunication infrastructure. Going forward, rural communicationspenetration - particularly in the areas of internet and banking services - should see India’stelecoms revolution sustain momentum in the coming decade.

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