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India Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views
We expect the progress of relations between India and Pakistan to remain slow, despite recent efforts to improve them. We believe that the long-standing dispute between India and Pakistan over Kashmir is unlikely to be resolved any time soon, and will continue to strain Indo-Pakistani relations for the foreseeable future. Consequently,
security issues will be a greater concern than economic co-operation for India. We maintain our above consensus forecast for India's real GDP growth to accelerating to 5.6% (consensus expectations of 5.4%) in FY2014/15 (April-March), from 4.7% in FY2013/14. Greater policy certainty and positive regulatory improvements will support an economic growth revival over the coming quarters. While the pace of recovery will also depend on the timing of monetary easing, we have seen optimistic signs from the strong Q1 GDP print.

Although headline inflation has eased somewhat in India, they remain at elevated levels, amongst the highest in the region. That said, we believe that inflationary pressures will ease over the short and medium term. Additionally, the Reserve Bank of India (RBI) maintained its repurchase rate at 8.00% at its September policy meeting. We forecast the central bank to stay determined to contain medium-term price pressures and therefore stand pat on interest rates at its next meeting in December. However, we expect the central bank to ease interest rates by 25 basis points to 7.75% by Q4FY2014/15 as it turns its focus towards supporting economic growth. Over the longer term, we remain constructive on the Indian rupee (INR) but expect a slow appreciation as the RBI seeks stability in the currency. We forecast the Indian rupee to appreciate slowly, averaging INR59.25/USD in 2015 and INR58.50/USD in 2016, supported by improved economic growth prospects.

Major Forecast Changes
We have upgraded up our forecasts for consumer price inflation to come in at 7.7% at the end of FY2014/15 (April-March) on the back of a likelihood that low levels of rainfall could persist for longer. That said, we believe that the government will actively employ measures to address the supply in the domestic market, should inflation worsens.
We have revised our forecast for the INR to average INR59.25/USD in 2015 and INR58.50/USD in 2016 but remain constructive on the unit. Our revision was predicated on the back of recent weakness in the INR and continued intervention in the open market by the RBI in 2014.

Table Of Contents

India Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics 8
Progress Of Indo-Pakistan Relations To Remain Slow8
India's decision to abruptly call off foreign secretary-level talks with Pakistan on August 18 will be a setback to Indo-Pakistan relations.
Bilateral relations will progress slowly, as a result of the ongoing standoff over Kashmir, which is likely to persist for the foreseeable
future. Consequently, security issues will be a greater concern than economic co-operation for India.
Table: POLITICAL OVERVIEW8
Long-Term Political Outlook 10
Gradual Reform To Prevail Over The Coming Decade..10
India's new government has the strongest mandate in 30 years to transform the economic and political landscape, and make the country
more prosperous and business-friendly. The main challenges will be tackling obstructionism from regional governments and traditional
interest groups, and ensuring that future economic growth consolidates a politically moderate middle class.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity .. 14
Strong GDP Print Reaffirms Our Positive Growth Outlook.14
We believe the Indian economy will sustain robust growth momentum over the coming quarters on the back of resilient investment and
strong export growth. Greater policy certainty and positive regulatory improvements are likely to benefit the manufacturing and mining
sectors. We maintain our forecast for real GDP growth to accelerate to 5.6% in FY2014/15 (April-March), from 4.7% in FY2013/14.
Table: Economic Activity14
Fiscal Policy 16
Small Efforts To Rein In Fiscal Expenditure Taking Shape16
For the period from April-July, the Indian government fiscal deficit stood at 61.2% of the INR5.31bn budgeted for FY2014/15 (April-
March). Our view for the government to take gradual efforts to rein in expenditure rather than increase revenue collection informs our
forecast for the central government's fiscal deficit to narrow to 4.5% and 3.9% of GDP in FY2014/15 and FY2015/16, respectively.
Table: Fiscal Policy.16
Monetary Policy 18
RBI To Remain Cautious..18
The Reserve Bank of India maintained its repurchase rate at 8.00% at its September policy meeting. We forecast the central bank to
stay determined to contain medium-term price pressures and therefore stand pat on interest rates at its next meeting in December.
That said, we expect the central bank to ease interest rates by 25 basis points to 7.75% by Q4FY2014/15 as it turns its focus towards
supporting economic growth.
Table: Monetary Policy..18
Exchange Rate Policy .. 19
INR: Neutral Short-Term, Appreciatory Bias Thereafter19
The Indian rupee is likely to trade in a tight range over the coming months and we forecast the unit to average INR60.00/USD in 2014
as the Reserve Bank of India's intervention in the open market should dampen further appreciatory pressures. Over the longer term, we
forecast the unit to appreciate slowly, averaging INR59.25/USD in 2015 and INR58.50/USD in 2016, supported by improved economic
growth prospects.
Table: CURENCY FORECAST..19
Table: Current Account.20
Chapter 3: 10-Year Forecast. 23
The Indian Economy To 2023 23
Will Indian Growth Live Up To Expectations?23
Improving demographics, structural reforms and trade liberalisation in India during the 1990s set the stage for an explosion in the
country's domestic savings rate, which, in turn, ignited economic growth in the 2000s. Going forward, favourable demographics and
trade integration should remain strong tailwinds. However, should India's reform momentum continue to disappoint, the country could
struggle to generate sufficient savings growth to finance its investment needs, with headline economic growth suffering as a result.
Table: Long-Term Macroeconomic Forecasts23
Chapter 4: Operational Risk. 27
Operational Risk Index. 27
Operational Risk 28
Table : Operational Risk ..28
Table : Transport Network Risk .30
Economic Openness.. 33
Table: Economic Openness..34
Table: Top Five Trade Partners - Product Exports (USDmn)35
Table: Top Five Product Imports, (USDmn)36
Chapter 5: Key Sectors.. 39
Oil and Gas 39
Table : Refined Petroleum Products , Production Breakdown ..40
Table : Refined Petroleum Products , Production Breakdown .41
Table: Construction and Infrastructure Industry Data..42
Infrastructure.. 43
Table: Construction and Infrastructure Industry Data..43
Other Key Sectors 47
Table : Pharma Sector Key Indicators .47
Table : Telecoms Sector Key Indicators 47
Table : Defence and Security Sector Key Indicators ..47
Table : Food and Drink Sector Key Indicators 48
Table : Autos Sector Key Indicators .48
Table : Freight Key Indicators ..48
Chapter 6: BMI Global Assumptions.. 49
Global Outlook 49
Big Emerging Market Revisions.49
Table: Global Assumptions.49
Table: Developed States, Real GDP GrowtH, %..50
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 50
Table : Emerging Markets , Real GDP Growth , %.51

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