India Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	1744-8786
Product Code	BMI02047

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Summary

Election Run-Up already Steering Policies The focus of Indian policymakers is already firmly on the next general elections, which are due by May 2009. To this end, the government's main priority will be to rein in rising inflation, which is a manifestation of global commodity prices and domestic overheating. Throughout the past two years, we have argued that a growth rate above 9.0% is unsustainable for India, instead estimating its trend growth rate in the 7.0-8.0% range. In addition, widespread concerns about the distribution of gains from economic growth, obstacles on the path to developing India's dismal infrastructure, and the challenges of an appreciating rupee, which affects export competitiveness, are all issues that have come to the fore. This was the backdrop against which Finance Minister P Chidambaram delivered his FY08/09 budget. The populist budget comes as little surprise given that the Congress-led coalition government is losing support. Ironically, however, increased public spending will add to the country's inflationary woes - a key election issue.

With the ruling Indian National Congress (INC) and the opposition Bharatiya Janata Party (BJP)

- India's two major political parties - both hamstrung by political infighting (which in the INC's case is the result of holding together a large and unstable coalition), it is still far too early to predict what form the next government might take. What is clear, however, is that the current ruling coalition is on its last legs, and, we would not be surprised to see the head of a smaller party, such as the Bahujan Samaj Party's Mayawati Kumari, take the reins as prime minister in either a Congress- or BJP-led coalition.

Central bank Governor Yaga Venugopal Reddy has publicly stated that India's inflation rate is unacceptable. However, if the central bank responds by hiking the key policy rate (currently at 7.75%), we stress that this effort will be largely symbolic. For any meaningful relief from rising prices, India will be pinning its hopes on whether the monsoon forecast is borne out. It may also seek to steer the rupee higher to offset imported inflation. Fortunately, India's monsoon rains are expected to be sufficient this year. More than anything else, this should help stave off pressure on food prices by reducing the nation's dependence on imports.

As regards the business environment, a committee, headed by former chief economist for the IMF Raghuram Rajan, is arguing for greater reforms to help develop India's financial markets, the underdevelopment of which, by some estimates, shaves 1.0-2.0% off GDP growth. Unfortunately, even though the committee's agenda is aimed at providing benefits for the middle class, the farmers and the urban poor, the Singh government, now known for its preference for populist farm-debt waivers and large pay increases to civil servants, is unlikely to follow through on its reformist credentials by implementing its suggestions.

Content

Executive Summary
Election Run-Up already Steering Policies
Chapter 1: Political Outlook6
- SWOT analysis
- BMI Political Risk Ratings
- domestic Politics8
- Looking ahead To The General Elections
- With general elections due by May 2009 at the latest, chances that the Indian National Congress (INC)-led
- United Progressive Alliance (UPA) will survive in its current form are slim at best
- Table: India Political Overview
- Foreign Policy
- new delhi Challenges Beijing In africa
- The first Indo-Africa Forum Summit, which was held in April, is a significant step towards establishing a regular
- dialogue between New Delhi and the emerging African continent, and should allow Indian officials to formulate
- a coherent Africa policy
Chapter 2: Economic Outlook
- SWOT analysis
- BMI Economic Risk Ratings
- Economic activity
- Tight Monetary Policy Will Suppress Growth
- India's economic growth will continue to moderate after reaching an 18-year high of 9.4% in FY06/07
- Table: Economic activity
- Fiscal Policy
- Populist Budget Will not Reverse Growth Trend
- The populist tone of the budget for the FY08/09 came as little surprise, given that the Congress-led coalition
- government is losing support, and faces general elections before May 2009
- Table: Fiscal Policy16
- Monetary Policy
- Expect Tougher Action On Inflation
- With inflationary pressures threatening the government's re-election prospects, the authorities are looking for
- ways to curb price pressures
- Table: Monetary Policy18
- Investment Climate
- Futures Contracts Offer Hedging Opportunities
- A committee issued a key report on the state of India's financial system and suggestions for reform, soon after
- plans were announced for India's first commodities index
Chapter 3: Special Report
- Business Outlook For Global Frontier Markets
- Growing Fast On The new Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the world
- economy, but they possess characteristics that will see them gain importance in the eyes of investors and global
- businesses over the coming years,
- Frontier Investment
- Potential and Pitfalls
- The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
- successful efforts to deepen capital markets
- Table: Frontier Markets - Key data and Projections For Top 10 Countries
- Table: GdP Per Capita, US$ (In Order Of % Increase)
- Table: Diversify Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices26
- Regional Overview
- Laos
- neighbouring Economies The Key To Growth
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for
- its natural resources. GDP expansion in 2007 has been estimated at 7.6% and we see annual growth remaining
- above 7% for our five-year forecast period
- Yemen
- Huge Potential, But don't Bank On GCC Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- Table: Yemen - Economic activity
- democratic Republic Of The Congo
- Mining Industry To drive Growth
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- Table: democratic Republic Of The Congo - Economic activity33
- Cuba
- Investment Prospects after Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
- with the US may be lifted and Cuba may move toward market liberalisation
- Table: Cuba Macroeconomic data and Forecasts
- Mongolia
- Minerals To drive Economic Boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- Table: Mongolia - Economic activity
Chapter 4: Business Environment40
- SWOT analysis
- BMI Business Environment Risk Ratings41
- Business Environment Outlook
- Table: BMI Business and Operational Risk Ratings
- Institutions
- Table: BMI Legal Framework Ratings44
- Infrastructure
- Market Orientation
- Table: BMI Trade Ratings50
- Table: Top Export destinations (US$mn)
- Operational Risk
Chapter 5: Key Sectors54
- defence & Security
- Market Overview
- Table: defence Historical data and Forecasts56
- Chemicals
- Table: Indian Chemicals Industry -- Historical data & Forecasts