Country Report India September 2009

Outlook for 2009-10

• The scale of the Indian National Congress party's victory in the April-May 2009 general election means that the Economist Intelligence Unit expects the new government to be cohesive and durable.
• Relations between India and Pakistan are thawing, and it remains the case that India's broader objectives towards Pakistan cannot be realised without a resumption of the composite dialogue between the two countries.
• Congress's continuation in power means that economic policy will remain broadly unchanged. Priority will continue to be given to combating the effects of slower economic growth and to measures targeting the rural sector.
• 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 ensure that progress not guaranteed.
• Real GDP growth is forecast to slow to 5.5% in fiscal year 2009/10 (April-March) owing to the global recession. Economic growth is forecast to accelerate to 6.3% in 2010/11.
• Consumer price inflation is forecast to remain stubbornly high, at an average of 7.7% in 2009, despite the fall in wholesale prices. However, it should ease to 5.6% in 2010, although wholesale price inflation will rise again.

Monthly review

• The prime minister, Manmohan Singh, agreed to "delink" the resumption of talks with Pakistan from the latter's ???action on terrorism???, but faced a public outcry over his comments, which were perceived to be too acquiescent.
• In August talks between India and China in the Indian capital, New Delhi, on disputed territory along their Himalayan border ended inconclusively.
• In its monetary policy review of July 28th, the Reserve Bank of India (the central bank) signalled that the focus of monetary policy had shifted from supporting economic growth to containing inflation.
• The government has proposed a radical reform of India's antiquated tax laws. The draft new code proposes reducing the corporate tax rate and raising the minimum income threshold for personal tax liability, among other things.
• The monsoon rains, crucial for India's largely rain-fed agricultural sector, are proving to be deficient this year. The government maintains that there is no threat to food security, but overall economic growth is likely to be affected.
• Industrial production increased by 7.8% year on year in June??