India Business Forecast Report Q3 2009

Publication Date	May 2009
Publisher	Business Monitor
Product Type	Report
Pages	66
ISBN Number	1744-8786
Product Code	BMI03901

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Summary

India Coping, But Politics A Risk To Long-Term Growth

Government stimulus and a sizeable service sector should help to shield India from the storm winds buffeting more export-dependent emerging markets. Nonetheless, the expected slowdown in GDP growth from an average of 9.1% in FY2003/04 (April-March) to FY2007/08 to 5.0% in FY2009/10 will be severely felt. We expect the leeway for economic reform to remain constrained after the April-May general elections, as political power continues to shift from the ruling Indian National Congress (INC) and the main opposition Bharatiya Janata Party (BJP) to a more diverse group of smaller parties catering to different interest groups. Therefore, while India's solid macroeconomic fundamentals bear promise of continued strong growth over the long term, we believe that political fragmentation will continue to hamper investment in education and infrastructure.

Our core scenario is a continuation of the United Progressive Alliance coalition government, with support from the Communist and/or the Samajwadi Party after the April-May parliamentary polls.

However, the fortunes and actions of the Third Front, and the Bahujan Samaj Party in particular, constitute a clear risk to our core scenario and could result in a deadlocked parliament and/or an impaired government coalition going forward. Such a scenario would also bring risks to the continuity of India's foreign policy. However, we see it as a positive that the INC and BJP have converged in their foreign policy outlook.

We maintain our 5.0% GDP growth forecast for FY2009/10 (April-March) after an estimated 6.3% expansion in FY2008/09, with resilient growth in the agricultural and service sectors softening the impact of the ongoing slowdown in the manufacturing sector. Fiscal stimulus will also provide a boost, but an unfavourable outcome of the general elections in April-May constitutes a clear risk to an economic recovery. We nevertheless expect GDP growth of 6.4% in FY2010/11 as the global economy starts to improve and capital inflows to India resume in earnest.

We maintain that without more substantial improvements to India's rudimentary infrastructure, it will not be able to achieve annual GDP growth of 8-9%, as targeted. The budget for FY2009/10 (April-March) maintained a high degree of spending on rural infrastructure, but we believe public investment in education and infrastructure will fall well short of India's immense needs. Nonetheless, we see potential for an increase 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 required 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
- India Coping, But Politics A Risk To Long-Term Growth
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Election: UPA Expected To Win, But Third Front Risk
- Our core scenario is a continuation of the United Progressive Alliance coalition government, with support of the
- Communist and/or the Samajwadi Party after the April-May parliamentary polls.
- Foreign Policy
- Foreign Policy Unlikely To Change, Post-Election
- While the uncertain outcome of the Indian elections poses a threat to policy continuity in the short term, we
- foresee no greater shift in foreign policy under the next parliamentary term.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Slowdown Inevitable, Election Poses Risk
- We maintain our 5.0% GDP growth forecast for FY2009/10 (April-March), with resilient growth in the agricultural
- and service sectors softening the impact of the ongoing slowdown in the manufacturing sector.
- Monetary Policy
- More Rate Cuts Expected As RBI Takes Over Stimulus Baton
- We expect further rate cuts by the Reserve Bank of India (RBI) in 2009, bringing the benchmark repo rate down
- to 4.00% by the end of FY2009/10 (April-March) as the central bank attempts to cushion the ongoing slowdown
- in growth.
- Balance Of Payments
- Narrowing C/A Deficit And Capital Inflows To Boost Rupee
- We are expecting India's current deficit to shrink in FY2009/10 as the costs of commodity imports fall and
- services exports prove robust.
Chapter 3: 10-Year Forecast
- The Indian Economy To 2018
- Poor Governance And Infrastructure Holding Back Growth
- India is, together with China, often heralded as one of the rising economic superpowers of the 21st century.
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- IT
- Executive Summary
- BMI forecasts an India IT-market CAGR during the next two years of our forecast period of 12.5%, as some key
- growth fundamentals enable the market to overcome difficulties associated with the global economic slowdown.
- Tourism
- Executive Summary
- Final figures released by India's ministry of tourism show that tourist arrivals grew rapidly in 2007.
Chapter 7: BMI Global Assumptions
- Global Outlook
List of Tables
- Table: Political Overview
- Table: ECONOMIC ACTIVITY
- Table: MONETARY POLICY
- Table: BALANCE OF PAYMENTS
- Table: INDIA Long-Term Macroeconomic Forecasts
- Table: LOAN-TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: ASIA, FDI ANUAL INFLOWS
- Table: BMI TRADE RATINGS
- Table: TOP EXPORT DESTINATIONS
- Table: IT Industry - Historical Data & Forecasts, 2006-2013
- Table: India - Historical Data And Forecasts, Travel Industry
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL ASSUMPTIONS - LONG-TERM FORECASTS
- Table: Developed States, Real GDP Growth Forecast
- Table: EMERGING MARKETS, REAL GDP GROWTH FORECAST
- Table: Comodities
- Table: GLOBAL & REGIONAL REAL GDP GROWTH