Country Report India December 2008

Summary

The next general election, which must be held by May 2009, is almost certain to return another coalition government. The ruling Indian National Congress party faces an uphill struggle to win re-election.
The government is not in a strong position to respond to the impact of the global financial crisis with supplementary fiscal measures, as fiscal policy is already relatively loose.
The global financial crisis has triggered a complete reversal of monetary policy. After a 100-basis-point interest rate cut on October 20th, the Economist Intelligence Unit expects further rate cuts in 2009.
Global deleveraging and moves to reduce risk exposure will hit India hard, and we forecast real GDP growth of 6.2% in fiscal year 2008/09 (April-March) and 6.1% in 2009/10.
Despite the reversal of the commodity price boom, India will remain highly vulnerable to upward inflationary pressures in 2009.
The rupee will regain some of its recent losses against the US dollar during the forecast period, but will still show a year-on-year depreciation of 7.8% in 2009, averaging Rs47:US$1 in that year.

State elections were held in Chhattisgarh on November 13th and began in Jammu and Kashmir on November 17th. Four other states will go to the polls in the next few weeks.
Investigations into recent terrorist attacks revealed that Hindu radicals may have been involved in bombings (Muslim radicals had been blamed).
On November 15th the Reserve Bank of India (RBI, the central bank) eased restrictions on lending to the property sector and raised the limit on export credit finance available to banks, in a further effort to boost liquidity.
In an attempt to mitigate the impact of large capital outflows, the RBI is tryingto encourage deposits from non-resident Indians, and is considering liberalising restrictions on foreign direct investment.
A raft of recent data shows that economic activity has slowed significantly. Corporate profits have fallen sharply, while a fall-off in spending on consumer durables, such as cars, augurs ill for private consumption growth.
Wholesale price inflation slowed to 9% year on year in the week to November 1st, driven by sharply lower commodities prices.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60
NAICS Code: 22;52