Country Report India April 2009

Summary

The month-long general election will start on April 16th and will be closely fought. The ruling Indian National Congress will have an edge over the main opposition Bharatiya Janata Party (BJP) in forming the next government.
There is a strong possibility that the next coalition government will be even more fractured than the current one; this suggests that the likelihood of the next government completing a full five-year term is low.
Relations with Pakistan are set to remain tense in the wake of Indian accusations of Pakistani complicity in the terrorist attack on Mumbai. The process of normalising bilateral ties has come to a temporary halt.
Because of slower government revenue growth and new stimulus spending, the Economist Intelligence Unit expects the budget deficit to reach 7.3% of GDP in fiscal year 2009/10 (April-March).
Global deleveraging and attempts to reduce risk exposure will continue to hit India hard, and we forecast real GDP growth of 5% in 2009/10, after an estimated 6% in 2008/09.
Further portfolio capital outflows, weakening industrial activity, a persistent current-account deficit, a widening fiscal deficit and a further loosening of monetary policy will all put pressure on the rupee in 2009.

The Third Front, a non-Congress, non-BJP political alliance, was formally launched on March 12th. It is led by the Communist Party of India (Marxist), the Telugu Desam Party and the All India Anna Dravida Munnetra Kazhagan.
The Rashtriya Janata Dal party announced in March that it would not enter a seat-sharing arrangement with Congress.
On March 4th the Reserve Bank of India (the central bank) cut the benchmark repo and reverse repo rates by one-half of a percentage point each, to 5% and 3.5% respectively.
A US-based credit-rating agency, Standard & Poor's, lowered its outlook on Indias sovereign credit rating from stable to negative in late February. The move was driven largely by India's rapidly worsening fiscal position.
Wholesale price inflation fell to 0.4% year on year in early March. However, consumer price inflation remains above 10%.
Merchandise export revenue declined by 15.9% year on year in January, while import payments fell even more sharply, by 18.2%. However, for the first ten months of 2008/09 as a whole, the trade deficit rose to US$44.5bn.

Source: Country Report