Economic Outlook no. 1189-1190 |Macroeconomic, Risk and Insolvency Outlook
Euler Hermes
India
Further reforms remain key to spur growth
Overview GDP growth is forecast at +5.5% y/y this year and +6.5% and +7% in 2013 and 2014, respectively, suggesting a bounce back following a relatively weak Q3 (Q2 FY2012/13) of +5.3% y/y. Manufacturing output grew by +0.8% y/y in Q3 and agriculture +1.2% (erratic monsoon rains) but construction and services were up +6.7% and +7.1%. The growth momentum remains lacklustre and, with September’s economic reforms yet to feed through, GDP is unlikely to return quickly to annual expansion of +8% or over, reflecting a weak global environment and a political system that makes policy implementation difficult.
Note pays structurelle
FFI
Country Risk Level B LOWCRI
L 1
Household expenditure is likely to be boosted by an easing in monetary pol- icy. However, the central bank is likely to cut interest rates in Q1 2013 only if there are clear signals that inflationary pressures are subsiding. This is now looking more likely, even though prices remain stubbornly high. Wholesale prices are the main official inflation gauge and the WPI was up 7.5% y/y in October. Meanwhile, improved mon- soon rains and reversal of the ban on wheat exports will boost rural incomes and spending power in 2013.
Fiscal deficits (-6% of GDP but around - 10% including state budgets) limit the scope for government spending. However, parliamentary elections in 2014 suggest that cuts in expenditure are unlikely and the government sector will remain a positive contributor (+6%) to annual growth, particularly as the ruling UPA coalition government is pledged to infrastructure and social programmes.
Investment is likely to gain momen- tum from recent reforms but further measures are needed. In December, the lower chamber of parliament voted in favour of the government’s policy on reform of the retail sector, which will allow foreign direct investment up to a
51% holding in domestic multi-brand supermarkets. The impact on retailing (and reforms in the airline sector) will not become apparent quickly but the policy shows positive intent. Investors, domestic and international, will be encouraged further if pledged pension and insurance reforms are forthcom- ing.
The external sector will remain a net negative influence on growth. Very large monthly trade deficits (USD20 billion in October), partly reflecting a large oil import bill, translate into deficits on the current account (around -4% of GDP in 2011 and 2012 and -3% in 2013 and 2014). Financing such deficits is unlikely to be a prob- lem, given equity and other short-term inflows but economic policy reforms are needed in 2013 and 2014 to main- tain confidence._AA
Trading partners USD billions: exports (FOB), imports (CIF)
12-months cumulative figures to end of Dec 2011 Country Total
of which, euro zone U.A.E. USA
China
Singapore Hong Kong Country Total
of which, euro zone China U.A.E.
Switzerland Saudi Arabia USA
Exports Share of total 307 42 39 33 19 16 13
100% 13.6% 12.7% 10.8% 6.2% 5.3% 4.1%
Imports Share of total 463 42 55 36 32 28 23
Sources: IHS Global Insight, IMF
Change over the period, unless otherwise indicated: * contribution to GDP growth ** INR bn
Economic forecasts INDIA
GDP
Consumer Spending Public Spending Investment Stocks Exports Imports
Net exports ,Current account
100% 9%
12% 8% 7% 6% 5%
forecasts * * **
Current account (% of GDP) Unemployment rate Inflation
General gov. balance **
share 2011 2012 2013 2014 100% 6.5 58% 5.5 12% 5.5 33% 8.3 1% -0.1
5.5 6.5 5.0 6.5 6.0
7.0 5.0 7.2
0.3 -0.3
21% 14.8 13.2 15.5 26% 11.6 12.8 13.7 -4% 0.0
-0.5 -0.3
-3.8 -3.2 9.3 7.7
9.4 7.2
52
7.0 7.0 6.0 8.0 0.1
12.5 15.5 -0.5
-4,100 -3,855 -3,550 -3,350 -4.1 9.2 9.5
-2.7 9.1 6.0
General gov; balance (% of GDP) -7.2 Public debt (% of GDP) Nominal GDP**
50
-7,300 -8,100-11,100-11,050 -8.0 -10.0 48
-8.8 50
101,106 101,334 110,741 125,815
Sources: IHS Global Insight, National data, IMF, Euler Hermes forecasts
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