Country Report India February 2009

Outlook for 2009-10

• The next general election, which is likely to be held over a three-week period from early to mid-April, will be very closely fought and will result in another coalition government.
• The ruling Indian National Congress appears to have a slight edge over the main opposition Bharatiya Janata Party (BJP), despite the deterioration in the economy and the ill-health of the prime minister, Manmohan Singh.
• Relations with Pakistan are set to remain tense in the wake of Indian accusations of Pakistani complicity in the terrorist attacks on Mumbai. The process of normalising bilateral ties will come to a temporary halt.
• After another 100-basis-point interest rate cut on January 2nd, the Economist Intelligence Unit expects the Reserve Bank of India (the central bank) to make further rate reductions in the next few months.
• Global deleveraging and attempts to reduce risk exposure will continue to hit India hard, and we forecast real GDP growth of 5% in fiscal year 2009/10 (April-March), after an estimated 5.3% in 2008/09.
• The rupee will recover some of its recent losses against the US dollar in the forecast period, but it will still record a year-on-year depreciation of 8.9% in 2009, averaging Rs47.8:US$1 in that year.

Monthly review

• Mr Singh underwent quintuple heart bypass surgery on January 25th. He plans to resume his political duties as soon as possible, but his illness highlights unresolved questions about political succession within Congress.
• Leadership issues are also affecting the BJP. While its prime ministerial candidate, Lal Krishna Advani, does not face an immediate challenge to his leadership, a younger generation of BJP leaders is vying to replace him.
• On January 2nd the government announced its second fiscal stimulus package in less than four weeks, aimed at easing the flow of credit and supporting a flagging economy.
• A massive fraud at one of India’s leading outsourcing companies, Satyam Computer Services, that serves more than a one-third of the Fortune 500 companies, has raised questions about corporate governance in India.
• After five years of unprecedented GDP growth in the region of 8-9%, the economy has slowed further amid a credit squeeze and a rapid deterioration in the manufacturing and services sectors.
• Merchandise exports declined for a second consecutive month in November as the global recession cut demand for Indian goods.

Source: Country Report

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