Country Report India November 2009

Outlook for 2010-11

• The Congress-led United Progressive Alliance (UPA) government, led by the prime minister, Manmohan Singh, faces no immediate threats to its rule and is expected to serve a full second term, which expires in 2014.
• Prospects for an early resumption of the five-year-old "peace process" between India and Pakistan are now in tatters following a deadly bomb attack on the Indian embassy in the capital of Afghanistan, Kabul, in early October.
• Congress's continuation in power means that economic policy will remain broadly unchanged. Priority will continue to be given to populist measures designed to help the aam admi (common man).
• Inflationary pressures in India will intensify in the next six months, forcing the Reserve Bank of India (RBI, the central bank) to start to tighten monetary policy in early 2010.
• The more dominant role that Congress will take in the new governing coalition means that there is scope for further progress on economic reform. However, internal party dynamics will ensure that progress is not guaranteed.
• Improving macroeconomic indicators have led the Economist Intelligence Unit to revise up its forecast for real GDP growth to 5.8% in fiscal year 2009/10 (April-March) and 6.5% in 2010/11, from 5.5% and 6.3% previously.
• The poor monsoon will keep food price inflation high, and consumer price inflation is forecast to slow only slightly, to 9% in 2010, from an estimated 10.2% in 2009; it will ease down to 5.7% in 2011.

Monthly review

• India believes that the embassy bombing in Kabul, for which the Taliban has claimed responsibility, could not have been carried out without the help of Pakistan's military-intelligence agency, the Inter-Services Intelligence.
• Congress won all three state elections held on October 13th, suggesting that the UPA government continues to enjoy strong public support, while opposition parties remain weak and divided.
• There are three issues that could wound the reputation of the government—the Naxalite (Maoist) insurgency, the inadequate preparations for the 2010 Commonwealth Games and rising tensions with China.
• The RBI kept official interest rates on hold at its policy meeting on October 27th, but it rolled back several of the unconventional measures that it took to counter the global financial crisis.
• Recent economic indicators suggest that the economy is beginning to rebound—industrial output jumped by 10.4% year on year in August.

Source: Country Report