India Business Forecast Report Q1 2009

Publication Date	October 2008
Publisher	Business Monitor
Product Type	Report
Pages	75
ISBN Number	1744-8786
Product Code	BMI02910

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Summary

India To Take Hit From Global Downturn

The Indian economy has shown a slower growth momentum in the first two quarters of FY2008/09 (April-June) and we see a risk of a sharper slowdown in growth in coming quarters, while the rapid depreciation of the rupee brings upside risks to inflation. The deteriorating economic backdrop will be the prime issue in the upcoming elections, which we believe will be won by a centre-right coalition. While bringing in a more conducive policy environment this will do little to shield India from the current global macroeconomic woes and we thus acknowledge severe downside risks to our short-term growth forecast. While Indias solid macroeconomic fundamentals bear promise of continued strong growth over the long term, we believe trend growth will be hampered by inadequate investment in education and infrastructure.

Double-digit inflation and a rapidly slowing economy bode ill for the re-election prospects of the ruling Indian National Congress Party and its coalition partners in the United Progressive Alliance. We thus anticipate that the national elections, which have to be called before May 2009, will bring in a government led by the Bharatiya Janata Party (BJP). We believe this will raise the potential for economic reform going forward, but see risks of further bomb attacks by Islamist militants and community-based violence. On the foreign policy front, we see relations between New Delhi and Washington intensifying going forward in spite of the BJPs objections to the US-India nuclear deal approved by the US Congress in early October.

GDP growth decelerated to a four-year low of 7.9% year-on-year (y-o-y) in the first quarter of FY2008/09 (April-June) as decade-high inflation and rising interest rates took the heat of Indias booming economy. With the global macroeconomic backdrop deteriorating rapidly, we now see increasing downside risks to our 7.9% GDP growth forecast for FY 2008/09. The outlook is even more troubling for FY2009/2010 and we are now considering a substantial downward revision of our 7.8% GDP growth projection for the fiscal year. In the longer term, the nuclear deal signed with the US and a trade deal signed with the ASEAN countries have boosted Indias growth prospects.

We maintain that without more substantial improvements to Indias rudimentary infrastructure, it will not be able to maintain annual GDP growth at 8-9%. The budget for FY2008/09 has singled out power, national highways and rural infrastructure as the main beneficiaries of government spending, but we believe public investment in infrastructure will fall well short of Indias immense needs. Nonetheless, we see a higher potential in public-private partnerships (PPP), which have shown some initial success. However, we do not believe that India has, or will have any time soon, the adequate policy and regulatory framework to double the degree of annual infrastructure investment from 4.5% to 9.0% of GDP over the next five years as targeted.

Content

Executive Summary
SWOT Analysis
BMI Political Risk Ratings
Chapter 1: Political Outlook
- Domestic Politics
- 2009 Elections: What To Expect
- The national elections are now fast-approaching and Indias main political forces, the ruling Indian National Congress (INC) and the opposition Bharatiya Janata Party (BJP) are now moving into campaign mode.
- Foreign Policy
- Nuclear Deal Boosts Indo-US Partnership
- On October 1 the US Senate approved a deal giving New Delhi access to nuclear fuel and technology, which will help India boost its power supply, while reinforcing ties between the two countries.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Mounting Downside Risk To Growth Forecast
- We maintain our 7.9% GDP growth forecast for FY2008/09 (April-March), albeit acknowledging growing downside risks in the form of high inflation and monetary tightening squeezing domestic demand.
- Monetary Policy
- RBI Shifts To Neutral Stance, But Inflation Risks Remain
- We have toned down our hawkish outlook on Indian monetary policy as slower growth in developed markets starts taking a toll and global financial market turmoil strains the domestic banking system.
- Balance of Payments
- Rising Current Account Deficit Increases Vulnerability
- We see increasing risks for Indias balance of payments, and by extension the rupee, as a continued widening of the goods trade deficit is paired with a strong outflow of foreign portfolio investment.
- Trade Policy
- Indo-ASEAN FTA To Boost South-South Trade
- We see the successful conclusion of free trade talks between New Delhi and ASEAN on August 29 as significant in advancing Indias trade position in the increasingly important South East Asia region, where it has so far fallen behind east Asian nations like China, Japan, South Korea and Taiwan.
- Investment Climate
- Maharashtra: A Gateway To India
- The state of Maharashtra has been the prime engine of the Indian growth wonder over the past decade, but the question is whether this can continue as the world economy enters into choppier waters following the global financial turmoil.
Chapter 3: 10-Year Forecast
- The India Economy To 2018
- Governance And Infrastructure Holding Back Growth
- India is, together with China, is often heralded as one of the rising economic superpowers of the 21st century.
Chapter 4: Special Report
- Why The US Can Remain World Superpower
- Wealth Is Shifting East...
- The USs current financial woes will not necessarily undermine its position as a global superpower.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- BMI TRADE RATINGS
- Operational Risk
Chapter 6: Key Sectors
- Petrochems
- Power
Chapter 7: BMI Global Assumptions
- Global
- United States
- Eurozone
- Japan
- China
- Commodities
Tables
- Table: India Political Overview
- Table: Economic Activity
- Table: Monetary Policy
- Table: Balance Of Payments
- Table: India Long-Term Macroeconomic Forecasts
- Table: Geopolitical Power Index
- Table: Bmi Business And Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: Asia, Annual Fdi Inflows
- Table: Top Export Destinations
- Table: India Petrochemicals Sector Data And Forecasts
- Table: India Power (Non-Thermal) - Historic Data & Forecasts
- Table: Global Assumptions