Country Report India

Outlook for 2008-09

• Lacklustre state election results for the Indian National Congress party suggest that the United Progressive Alliance (UPA) minority coalition government that it leads is now likely to complete its full term ending in May 2009.
• The next general election will return another coalition government, since neither Congress nor the main opposition party, the Bharatiya Janata Party, is likely to be strong enough to win a majority on its own.
• The government's target for the federal budget deficit in 2008/09 (April-March) is 2.5% of GDP, but its expansionary spending commitments and public-sector wage awards will keep the deficit at 3.2% of GDP.
• The acceleration in inflation will force the Reserve Bank of India (RBI, the central bank) to tighten monetary policy during 2008, with interest-rate cuts postponed to 2009.
• Consumer price inflation is now forecast to average 6% (previously 5.8%) in 2008 and 5.7% (previously 5.5%) in 2009.
• The gloomy outlook for the US economy will have a negative impact on the Indian economy, but the slowdown in India will be relatively shallow, with real GDP growth slowing to 7.6% in 2008/09 and 7.1% in 2009/10.
• Lacklustre state election results for the Indian National Congress party suggest that the United Progressive Alliance (UPA) minority coalition government that it leads is now likely to complete its full term ending in May 2009.
• The next general election will return another coalition government, since neither Congress nor the main opposition party, the Bharatiya Janata Party, is likely to be strong enough to win a majority on its own.
• The government's target for the federal budget deficit in 2008/09 (April-March) is 2.5% of GDP, but its expansionary spending commitments and public-sector wage awards will keep the deficit at 3.2% of GDP.
• The acceleration in inflation will force the Reserve Bank of India (RBI, the central bank) to tighten monetary policy during 2008, with interest-rate cuts postponed to 2009.
• Consumer price inflation is now forecast to average 6% (previously 5.8%) in 2008 and 5.7% (previously 5.5%) in 2009.
• The gloomy outlook for the US economy will have a negative impact on the Indian economy, but the slowdown in India will be relatively shallow, with real GDP growth slowing to 7.6% in 2008/09 and 7.1% in 2009/10.

Monthly review

• Political parties have been busy gearing up for elections in some major states this year—Karnataka (in May), Madhya Pradesh, Rajasthan, Chhattisgarh and Delhi.
• With one year of its five-year term remaining, the Congress-led government has faced increasing pressure to nominate a prime ministerial candidate to lead the next general election campaign.
• China’s crackdown on protests in Tibet has fuelled a heated domestic debate on India’s foreign policy towards its large neighbour, but the government has remained largely silent since the protests erupted.
• At its quarterly review meeting on April 29th the RBI increased the cash reserve ratio by 25 basis points to 8.25%, effective May 24th, while its key policy interest rates were left unchanged.
• In an emergency meeting on March 31st the government hammered out a host of measures aimed at combating inflation. The government has said that tackling inflation is its main priority even at the expense of economic growth.
• Following five years of uninterrupted record economic expansion, a range of economic indicators suggest that the business cycle in India has turned down.
• Political parties have been busy gearing up for elections in some major states this year—Karnataka (in May), Madhya Pradesh, Rajasthan, Chhattisgarh and Delhi.
• With one year of its five-year term remaining, the Congress-led government has faced increasing pressure to nominate a prime ministerial candidate to lead the next general election campaign.
• China’s crackdown on protests in Tibet has fuelled a heated domestic debate on India’s foreign policy towards its large neighbour, but the government has remained largely silent since the protests erupted.
• At its quarterly review meeting on April 29th the RBI increased the cash reserve ratio by 25 basis points to 8.25%, effective May 24th, while its key policy interest rates were left unchanged.
• In an emergency meeting on March 31st the government hammered out a host of measures aimed at combating inflation. The government has said that tackling inflation is its main priority even at the expense of economic growth.
• Following five years of uninterrupted record economic expansion, a range of economic indicators suggest that the business cycle in India has turned down.

SOURCE: Country Report