Forecast for India · India Highlights should facilitate quicker decision central bank (RBI)...

1 Economist: Nida Ali | Tel: +44 207 803 1423 | e-mail: [email protected]

12 Jun

2014

India Highlights

India’s electorate delivered a clear verdict in the 2014

general elections. The Bharatiya Janata Party (BJP)

won 282 seats of 543 in the lower house of

parliament, comfortably above the 272 required for a

simple majority. The unexpectedly clear mandate

provides a stable platform for governance, and

should facilitate quicker decision-making at the

centre, reduce uncertainty and political risk. This has

led to considerable optimism in financial markets,

with share prices scaling record highs and the rupee

appreciating. However, in our view, given the very

stubborn nature of some of the fundamental problems

facing India, it is too early to assume any marked

improvement in the country’s economic outlook.

Indeed, GDP growth in Q1 disappointed. The

economy expanded by just 4.6% year-on-year, below

our expectation of 5.2% growth. Manufacturing output

fell for the fourth consecutive quarter, while services

growth slowed from 6.4% in Q4 2013 to 5.8%. In view

of the sluggish data, we have revised down our GDP

growth forecast for 2014 from 4.7% to 4.5%.

Although the risks to India’s economy have tempered

considerably since last year, with the current account

deficit narrowing sharply and the fiscal deficit also

improving, the outlook is still weak. High inflation,

relatively tight monetary and fiscal policy and high

corporate debt levels will continue to exert a drag on

domestic demand. And while net exports will continue

to contribute positively to growth, this will largely

reflect weak imports rather than strong exports.

With headline CPI inflation still stubbornly high, the

central bank (RBI) maintained its policy rate at 8% in

June. Moreover the likelihood of a disappointing

monsoon raising food inflation remains high,

suggesting that interest rates will not be cut in the

near future. Instead, the RBI has lowered the

Statutory Liquidity Ratio (SLR) – banks’ mandatory

investment in government bonds – by 50 basis points

to 22.5% to ensure that banks have the scope to lend

more when credit demand picks up. But, on its own,

the move will not have any visible impact on growth.

2012 2013 2014 2015 2016 2017Domestic Demand 6.2 2.8 4.3 4.9 6.1 7.1

Private Consumption 5.7 4.0 4.7 3.9 7.4 8.0

Fixed Investment 2.4 1.0 1.6 4.7 6.4 7.8

Stockbuilding & discrep (% of GDP) 3.7 3.3 4.6 4.9 3.8 3.1

Government Consumption 7.6 4.4 -1.4 8.1 7.4 6.7

Exports of Goods and Services 8.3 5.3 5.2 6.4 6.4 6.0

Imports of Goods and Services 11.6 -1.0 3.1 6.0 6.3 7.8

GDP 4.8 4.7 4.5 4.9 6.1 6.6

Industrial Production 0.7 0.6 3.1 6.0 6.4 6.5

Consumer Prices 9.7 10.1 8.4 7.6 6.8 6.3

Current Balance (% of GDP) -5.4 -2.8 -1.9 -2.4 -2.1 -1.7

Government Budget (% of GDP) -5.8 -5.9 -4.5 -4.4 -4.1 -3.6

Current Account ($bn) -91.5 -49.2 -36.4 -49.8 -48.0 -43.3

Trade Balance ($bn) -201.7 -162.6 -162.8 -166.5 -167.8 -177.7

Short-Term Interest Rate (%) 9.47 9.32 9.09 8.08 7.75 7.67

Exchange Rate (Rupee per US$) 53.5 58.6 60.4 61.5 63.5 65.6

* Refers to Calendar year

Forecast for India *

(Annual percentage changes unless specified)

Country Economic Forecast

mailto:[email protected]

2 Economist: Nida Ali, Economist | Tel: +44 207 803 1423 | e-mail: [email protected]

12 Jun

2014

Research Briefing The end of an era…enough reason to be optimistic?

There was a dramatic end to the general elections last week, with the country’s electorate

delivering a clear verdict. The Bharatiya Janata Party (BJP) won 282 seats of 543 in the lower

house of parliament (Lok Sabha), comfortably above the 272 seats required for a simple majority.

With an embarrassingly low 44 seats, the Congress party, which led the coalition government for

the past ten years, did not even reach the 10% threshold for forming the opposition. This election

marks an end of the coalition politics characterising India’s politics since 1984, but it may not be an

end to the crony capitalism that is holding back India’s growth.

Clear mandate positive for economy…

The landslide victory came as a surprise. We were

expecting the BJP to win the most seats, but we thought

they would have to align themselves with other parties to

form a coalition – which would make reform more difficult

to achieve. The clear mandate provides a better, more

stable platform for governance. In the absence of

stubborn regional parties determined to protect their

states’ electorate and stand in the way of pro-growth

reforms, it will facilitate quicker decision-making at the

centre. It will also help to reduce uncertainty and political

risk, potentially leading to higher business and consumer

confidence. For this reason, Moody’s credit rating agency

deemed the election outcome “credit positive”.

…but optimism appears overdone

Financial markets welcomed the BJP win; not just

because of the clear majority, but also because the BJP

has earned a reputation for being pro-business. Many

believe it will help to lift India out of its current economic

mire. Share prices scaled record highs and the rupee

strengthened to its highest level since last June.

Fiscal position still precarious

We take a more cautiously optimistic stance on the

election results, however. India is still suffering from a

number of fundamental problems that will take time to

eradicate. The fiscal position remains precarious and

anecdotal evidence suggests that the public finances are

in a much worse state than has been officially reported.

Therefore, the new government will have little wriggle

room to increase capital expenditure to boost

infrastructure and raise potential growth. Corporate debt

as well as bad loans in the financial sector have risen

substantially, holding back the much-needed kick-start to

investment.

70

75

80

85

90

95

100

105

110

115

120

Jan 2011 Jan 2012 Jan 2013 Jan 2014

Index (Dec 30, 2010 = 100)

Source: Haver Analytics

India: Equity market

MSCI Emerging Markets (US$)

Bombay Sensex

20

22

24

26

28

30

32

34

36

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

Source: Oxford Economics / CEIC

India: Investment as a % of GDP

Forecast

% of GDP

India



12 Jun

2014

So regardless of the party in power, businesses will still

struggle to invest and banks to lend.

Crony capitalism needs to go

In the longer term, to be able to achieve the

government’s target growth rate of around 8%, India

needs an institutional overhaul aimed at reducing crony

capitalism and improving the business environment.

There is scant evidence to suggest that the BJP is much

better than the Congress in this regard. Indeed, the

Prime Minister designate, Mr Narendra Modi, has close

ties with big businesses like the Tata, Reliance, Ambani

and Adani groups. It would be surprising if he were not to

show favouritism towards these giant corporate entities.

While having a good relationship with them should help

to develop the country’s infrastructure, it will also promote

the culture of crony capitalism and prevent smaller

businesses from flourishing. Not only will this have a net

negative impact on the economy, it is also likely to extend

the acute inequality that currently prevails in India.

It’s too early to be sure of reform

The BJP has mentioned reform and development as

primary objectives in its election manifesto, but it remains

to be seen whether the party will deliver on these

promises. Links to an extremist right-wing group

(Rashtriya Swayamsevak Sangh) characterised by Hindu

Nationalism, together with Mr. Modi’s track record of

inaction when thousands of Muslims were killed in 2002

during riots in Gujarat raise questions in some quarters

about the priorities and integrity of the BJP. So while we

believe there is reason to be optimistic, it is too early to

celebrate an economic revival in India.

This article was originally published on 20 May as a

Research Briefing for our newly launched Global

Macro Service (Asia Pacific).

India



12 Jun

2014

Forecast Overview

Q1 GDP disappoints…

The Indian economy expanded by 4.6% year-on-year in

Q1 2014, well below our expectation of 5.2% growth.

Manufacturing output fell for the fourth consecutive

quarter, declining by 1.4% year-on-year, while services

growth slowed from 6.4% in Q4 2013 to 5.8%. The

expenditure side painted a mixed picture; consumer

spending was unexpectedly strong (after two particularly

weak quarters) but investment continued to stagnate.

In light of this generally discouraging data, we have cut

our growth forecast for 2014 from 4.7% to 4.5%.

…and the outlook remains problematic…

Although growth was only very moderate in Q1, India is

at least a lot less vulnerable to adverse economic

shocks than in 2013; the current account deficit has

narrowed sharply and the fiscal deficit has also

improved. Despite this, there are numerous problems

that will continue to hold growth back in the short term:

High inflation – wholesale price (WPI) inflation

remains above the RBI’s 5% comfort zone, albeit it

did fall back to 5.2% in April. Meanwhile, CPI inflation

rose to 8.6% in April, from 8% in February, far above

the recommended target of 4% (+/- 2% band). In

addition, the prospects of below-average monsoon

rains have raised the risk of inflation increasing

further in the coming months, as it will restrict food

supply and therefore boost food price inflation. As a

result, high inflation will continue to eat into

consumers’ purchasing power.

Relatively tight monetary policy – given high

inflation, the RBI maintained the repo rate at 8% in

June. And with inflation expected to remain sticky in

the coming months, we do not expect interest rates to

be cut until early 2015. Relatively high interest rates

are damaging growth by encouraging consumers to

save rather than spend and discouraging businesses

from borrowing to invest. Having said that, the RBI

has lowered the Statutory Liquidity Ratio (SLR) –

banks’ mandatory investment in government bonds –

by 50 basis points to 22.5% to ensure that banks

have more resources when credit demand picks up.

Rising corporate debt – India’s corporate sector is

now highly leveraged, with many companies having

borrowed on the assumption that the economy would

35

40

45

50

55

60

65

2001 2003 2005 2007 2009 2011 2013

4

5

6

7

8

9

10

11

Source: Reserve Bank of India

%

India: Exchange and interest ratesRupee/US$

Repo rate

(RHS)

Rupee/US$

(LHS)

-2

0

2

4

6

8

10

12

14

2002 2004 2006 2008 2010 2012 2014

% year

Producer prices

Consumer prices

Source: India Ministry of Commerce & Industry

India: Inflation

-6

-4

-2

0

2

4

6

8

10

12

14

1996 1999 2002 2005 2008 2011 2014 2017

% year

F'cast

Source: Oxford Economics

Domestic

demand GDP

Net exports

India: Contributions to GDP

India



12 Jun

2014

keep on growing by around 8% pa. According to the

IMF, India’s debt-to-equity ratio is elevated at 83%;

the highest among all emerging markets, and only

surpassed by Greece and Italy. At the same time, the

levels of bad debt in the financial system have also

risen rapidly. These factors will limit the banks’ ability

to lend and businesses’ desire to invest.

Only moderate export growth – export growth has

cooled this year, following a solid expansion during

H2 2013. In addition to subdued global demand,

exports are probably also being held back by supply-

side constraints including weak infrastructure in the

power and transport sectors. Net trade will continue

to contribute to growth, but this will reflect sluggish

imports rather than strong exports.

No room for flexible fiscal policy – India narrowly

avoided a sovereign credit rating downgrade to junk

status in 2013 after several years of missing its fiscal

targets. However, there are high hopes that the new

government will develop key power and transport

infrastructure and reduce supply-side bottlenecks.

But without a wider tax base the government has little

room for manoeuvre on the fiscal front and its scope

to increase capital expenditure will be limited.

…despite unexpectedly clear election result

India’s electorate delivered a clear verdict in the 2014

general elections. The Bharatiya Janata Party (BJP) won

282 seats of 543 in the lower house of parliament (Lok

Sabha), comfortably above the 272 required for a simple

majority, while the Congress party won just 44 seats.

This marks an end to coalition politics in India for the first

time since 1984.

The clear mandate should provide a stable platform for

governance, reduce uncertainty and political risk, and

improve sentiment across the economy. It should

facilitate quicker decision-making, with the government

no longer having to negotiate with stubborn regional

parties determined to protect their states’ electorate and

stand in the way of pro-growth reforms. Investors have

reacted very positively, with share prices scaling record

highs. However, given the deep-seated nature of many

of the problems facing the Indian economy, we think that

it is too early to assume a more upbeat medium-term

economic outlook than previously. Many of the required

reforms and initiatives will have adverse consequences

for some people in the short term and it remains to be

seen whether the new government will have the

determination to press on in the face of protests.

32

39

39

46

47

50

57

59

60

66

77

83

0 20 40 60 80 100

South Africa

Malaysia

Poland

Singapore

Turkey

China

Thailand

Mexico

Russia

Indonesia

Brazil

India

Debt to equity (non-financial corporations)%

Source : IMF

6

9

12

15

18

21

24

27

2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Bombay Stock Exchange

Bombay SE

India: Stockmarket000s

-10

-8

-6

-4

-2

0

2

20

30

40

50

60

70

1996 1999 2002 2005 2008 2011 2014 2017

% of GDP

F'cast


Government

debt (RHS)

Central government

balance (LHS)

India: Government budget balance and debt% of GDP

India



12 Jun

2014

Risk Assessment

India’s economic situation deteriorated significantly

between 2011 and 2013, so making the country more

vulnerable to domestic or external shocks. GDP growth

has slowed and the twin deficits have only recently

narrowed from unsustainable levels after drastic action

by the government, including policies to curb gold

imports and sharp cuts to capital spending. And although

the economy is now more stable, sluggish growth and

unfavourable domestic conditions (including high

inflation, tight monetary policy and a poor investment

environment) mean that much needs to be done before

the country is on a more secure footing.

On a more positive note, the formation of the new

government in May under the BJP, which won a clear

mandate in the elections, will help to reduce economic

uncertainty and political risk, and could spur a pick-up in

investment if structural reform is quickly initiated.

Emerging risks

Further capital outflows – despite making progress in

cutting the twin deficits, the Indian economy remains

vulnerable to capital outflows stemming from domestic or

external shocks, such as tighter monetary policy in the

US. Such developments could pose a significant

downside risk to our baseline forecast, as heightened

uncertainty would discourage investment while capital

outflows would push the exchange rate down and

inflation and interest rates up.

Key risk scenarios

Emerging market capital outflows – another round of

outflows of foreign capital would hit the economy hard by

weakening the exchange rate, pushing inflation up and

forcing the central bank to raise the repo rate sharply.

Growth might slow to around 2% in 2015, compared to

around 5% in the baseline.

China banking crisis – although India’s exposure to

China is relatively limited, the country would be quite

badly affected, since a banking crisis in China would not

only trigger capital outflows from emerging markets, but

also lead to a sharp global slowdown. Outflows of

capital, coupled with trade linkages with other countries

in the Asia Pacific region and beyond which are heavily

exposed to China, would hit India’s economy hard. In

this scenario, growth might slow to around 4% a year in

2014-19, compared to 6% a year in the baseline.

2013 2014 2017

India 51 53 44

World average 29 28 26

Sovereign risk 45 45 39

Trade credit risk 67 67 52

Political risk 51 63 55

Regulatory risk 33 32 30

Fiscal position is less

precarious now

Government debt to fall over

the forecast horizon

External debt remains at a

manageable level

Risk scenarios

GDP growth

CPI inflation

Current account balance

Government balance

Government debt

External debt

Risk index (0=no risk, 100=highest risk)

Risk warnings

GDP growth to remain below

5% in both 2014 and 2015

Inflation has moderated but

still uncomfortably high

Deficit halved as a % of GDP

in 2013

-1

1

3

4

6

US-led upside

Russia Ukraine tensionescalates

Eurozone slumps into deflation

Capital flows out of EMs

China Banking Crisis

Impact of scenarios on risk indexMaximum impact of scenarios on risk index

1

2

3

4

5

6

7

8

9

10

2010 2012 2014 2016 2018

Baseline

Capital flows out of EMs

China Banking Crisis

Russia Ukraine tension escalates

% year

Source : Oxford Economics

Impact of scenarios on GDP growth

India



12 Jun

2014

Long-Term Prospects

Favourable factors for long-term growth

GDP growth in India is expected to average 6.5% a year

in 2016-18, up from 4.7% a year in 2013-15. This

improvement is driven by:

Favourable demographics – India’s working age

population is expected to grow strongly over the next

two decades.

Rising middle class – the middle class is on course

to expand. Indeed, the number of households with an

income greater than US$30,000 is likely to more than

double over the next decade.

Competitiveness – India is competitive in

international markets, with relative unit labour costs

among the lowest of the BRIC economies.

But weak infrastructure – key sectors such as power

and transport are suffering from inadequate

infrastructure, which has prevented supply from

increasing in line with growing demand. This will

prevent India from achieving its target growth rate of

8% a year in the long term.

0

3000

6000

9000

12000

15000

18000

21000

24000

1996 1999 2002 2005 2008 2011 2014 2017 2020


India: Actual & potential output

Actual

Potential

Rupee billion, 2004/2005 prices

Forecast

2003-2012 2013-2022

Potential GDP* 7.6 6.0

Employment at NAIRU 1.1 1.8

Capital Stock 9.1 7.2

Total Factor Productivity 3.8 2.3

*ln(Potential GDP)=0.65*ln(Employment at NAIRU)

+0.35*ln(Capital Stock)+ln(Total Factor Productivity)

Potential GDP and Its Components

Average Percentage Growth

2003-2007 2008-2012 2013-2017 2018-2022

GDP 8.5 7.3 5.4 6.7

Consumption 6.9 7.7 5.6 7.0

Investment 15.3 7.4 4.3 7.2

Government Consumption 4.2 9.7 5.0 5.7

Exports of Goods and Services 21.3 10.2 5.9 5.5

Imports of Goods and Services 18.3 13.6 4.4 8.1

Unemployment (%) 12.8 12.5 12.5 12.5

Consumer Prices 4.8 9.6 7.8 5.3

Current Balance (% of GDP) -0.4 -3.5 -2.2 -1.4

Exchange Rate (vs US$) 44.5 47.6 61.9 72.3

General Government Balance (% of GDP) -4.2 -5.9 -4.5 -2.8

Short-term Interest Rates (%) 6.6 8.2 8.4 7.6

Working Population 2.1 2.0 1.6 1.3

Labour Supply 1.5 0.6 1.8 1.8

Participation Ratio -0.3 -1.5 -0.1 0.5

Labour Productivity 6.7 6.6 3.5 4.8

(Average annual percentage change unless otherwise stated)

Long-Term Forecast for India

India



12 Jun

2014

Background

Having rarely recorded GDP growth of above 7% prior to 2003, the Indian economy chalked up five consecutive

years above that figure between 2003-07, with 9%+ growth registered in 2005-07. This not only propelled the

country into the economic “fast lane” alongside China but also meant that it was making an important

contribution to the overall increase in world GDP. However, India still has a very long way to go along the

development path. According to the IMF, India’s GDP per capita using market prices and exchange rates was

just US$1,504 in 2013 while on a PPP basis it was US$4,077; the equivalent figures for China were US$6,747

and US$9,844 respectively.

But structural problems including supply-side bottlenecks in key sectors such as power and transport,

widespread corruption, bureaucratic hurdles and the lack of a transparent and disciplined policy framework

have contributed to a sharp slowdown in India’s economic growth, from above 8% to less than 5% in the last

couple of years. As a result, in the 2014 general elections, the Indian electorate, battered by high inflation and

poor economic conditions, delivered a clear mandate in favour of the opposition Bharatiya Janata Party (BJP).

The BJP won 282 seats of 543 in the lower house of parliament, comfortably above the 272 required for a

simple majority. Meanwhile the Congress party, which had been in power for the past ten years, suffered a

humiliating defeat. They won only 44 seats, not even crossing the 10% threshold required to form the

opposition. This marks an end to coalition politics in India for the first time since 1984. A decisive government

will speed-up decision-making at the centre and reduce political risk, although powerful state governments can

still slow the implementation of changes wrought by the national government.

With two-thirds of the population living in the countryside and more than half the labour force working in the

sector, agriculture is still a key part of the economy. However, in the eleven years to 2009 it only grew by 3.6%

pa in real terms so its share in the overall economy has fallen significantly, from 20.8% in 2002 to 13.8% in

2012. By contrast, the most dynamic sector has been the services sector, recording 9.4% annual growth

between 2002 and 2012, with major expansions in distribution, transport, communication, finance and business

services. Construction has also boomed, growing by more than 9% pa over the same period. Industry has

performed more modestly, with manufacturing recording 8% pa growth.

With the boom in the services sector helping to create a relatively affluent middle class, said to be 300m-strong,

the links between rural incomes and industrial activity have weakened. Rising incomes and increased access to

credit have led to much higher spending on consumer durables such as cars, phones and other electronic

items. However, the higher level of inflation since 2005 has particularly constrained the purchasing power of the

urban and rural poor. And if the economy is to sustain a high level of growth for several decades, it will need to

ensure that an ever-wider number of people are raised above virtual subsistence living, by increasing both

output and productivity growth in agriculture, raising educational standards and making cities more attractive to

migrants.

The 2000s saw a significant integration of the economy with the rest of the world. Exports of services (largely

software and business outsourcing) accounted for 8.5% of GDP in 2013 compared to 4.1% in 2002, while the

equivalent ratio for merchandise exports increased from 10.9% to 18.3%. Allied to this has been a sharp

increase in foreign investment in India, either in the form of FDI (despite the many bureaucratic hurdles) or in

portfolio flows.

The rapid growth in the economy in 2003-07 enabled a sharp fall in the central government budget deficit, from

5.9% of GDP in 2002/03 to 2.7% in 2007/08. However, relatively little was done during this time to widen the tax

base. The cyclical nature of the improvement in the budget over these years was shown by the speed of the

fiscal deterioration in H2 2008 as the economy slowed sharply. Indeed the fiscal deficit widened to 6.7% of GDP

in 2009/10. By 2013/14 it was down to 4.9%, but the pace of fiscal consolidation was much slower than planned

and the fiscal gap was still uncomfortably wide compared to many other emerging economies.

India



12 Jun

2014

Data & Forecasts

Industrial Bank CPI CPI PPI Exports Imports Trade

production Credit Industrial

workers

Combined

rural & urban

(US$) (US$) balance

$ bn

May -2.5 14.1 10.7 9.3 4.6 0.4 5.0 -19.4

Jun -1.8 13.7 11.1 9.9 5.2 -3.8 -1.6 -11.6

Jul 2.6 14.9 10.8 9.6 5.9 11.8 -5.3 -12.6

Aug 0.4 16.7 10.7 9.5 7.0 13.9 -0.4 -10.8

Sep 2.7 17.9 10.7 9.8 7.0 12.9 -17.9 -6.4

Oct -1.2 16.6 11.1 10.2 7.2 14.3 -13.4 -10.8

Nov -1.3 14.2 11.5 11.2 7.5 3.6 -16.5 -9.7

Dec 0.1 14.5 9.1 9.9 6.4 3.7 -14.8 -10.3

2014

Jan 0.8 14.7 7.2 8.8 5.1 4.0 -18.9 -9.5

Feb -1.8 14.3 6.7 8.0 5.0 -5.1 -17.9 -8.2

Mar -0.5 14.3 6.7 8.3 5.7 -4.8 -3.4 -10.5

Apr - 14.3 7.1 8.6 5.2 5.3 -15.0 -10.1

May - - - - - 12.4 -11.4 -11.2

Key Indicators: India

Percentage changes on a year earlier unless otherwise stated

Repo Money Exchange Exchange Exchange Share Reserves Reserves

rate Supply M3 rate rate rate index price cover

% % p.a Rup/€ avg. Rup/$ avg. Trade

based

End per. $bn months

May 7.25 13.6 71.4 55.0 78.1 19760 258.5 5.8

Jun 7.25 12.7 77.1 58.4 73.8 19396 255.3 7.2

Jul 7.25 12.4 78.2 59.8 72.5 19346 252.1 6.6

Aug 7.25 12.0 84.2 63.2 68.8 18620 247.4 6.7

Sep 7.50 12.9 85.1 63.8 68.2 19380 247.9 7.2

Oct 7.75 13.5 84.1 61.6 69.8 21165 254.5 6.6

Nov 7.75 14.3 84.5 62.6 68.8 20792 263.7 7.8

Dec 7.75 14.2 84.8 61.9 69.6 21171 268.6 7.3

2014

Jan 8.00 14.2 84.6 62.1 71.1 20514 264.6 7.3

Feb 8.00 14.5 85.0 62.3 70.8 21120 266.9 8.0

Mar 8.00 13.5 84.4 61.0 72.1 22386 276.4 7.0

Apr 8.00 13.9 83.3 60.4 72.7 22418 282.0 7.9

May 8.00 13.2 81.5 59.3 74.2 24217 285.3 7.3

Financial Indicators: India

Percentage changes on a year earlier unless otherwise stated

India



12 Jun

2014

INDIA TABLE 1 SUMMARY ITEMS Annual Percentage Changes, Unless Otherwise Specified

CONSUMERS TOTAL TOTAL REAL INDUSTRIAL PRIVATE GOVERNMENT WHOLE COMPETIT- PRODUCER CONSUMER

EXPENDITURE FINAL FIXED GDP PRODUCTION SECTOR BANK ECONOMY IVENESS PRICES PRICES

EXPENDITURE INVESTMENT BANK BORROWING PRODUCT- (2008=100)

CREDIT IVITY

(C) (TFE) (IF) (GDP) (IP) (BPRIV) (BGOV) (GDP/ET) (WCR) (PPI) (CPI)

YEARS BEGINNING Q1

2011 10.07 10.21 11.48 7.67 4.80 19.93 13.25 6.97 102.76 9.47 9.62 2012 5.74 6.55 2.40 4.81 0.72 16.54 15.47 3.72 91.10 7.55 9.70 2013 4.05 3.23 1.00 4.70 0.60 13.63 12.81 3.19 85.22 6.32 10.07 2014 4.73 4.47 1.56 4.51 3.12 9.47 9.51 2.77 86.08 4.95 8.44 2015 3.86 5.16 4.70 4.90 6.01 13.96 8.99 3.08 87.86 4.94 7.65 2016 7.43 6.14 6.38 6.09 6.43 13.37 9.02 4.14 86.98 4.79 6.80 2017 8.04 6.90 7.79 6.63 6.52 13.63 8.33 4.55 84.62 4.60 6.30

2011

I 11.57 10.73 7.03 9.56 7.92 21.14 8.44 9.01 104.70 9.57 9.17 II 8.11 10.27 22.91 7.63 6.98 19.81 13.29 6.99 105.64 9.61 9.63 III 8.31 9.15 11.70 7.00 3.18 23.12 14.17 6.25 104.65 9.72 9.90

IV 12.15 10.64 5.45 6.51 1.18 16.09 16.87 5.66 96.07 9.01 9.77 2012

I 8.24 9.53 10.23 5.77 0.63 17.08 15.68 4.82 96.67 7.50 8.62 II 5.04 5.47 -4.08 4.46 -0.28 18.41 16.67 3.42 90.35 7.54 10.18 III 4.74 6.30 -0.63 4.62 0.41 15.70 15.34 3.47 88.55 7.87 9.88

IV 5.07 4.89 4.44 4.38 2.09 15.15 14.27 3.14 88.82 7.29 10.07 2013

I 5.15 4.27 3.32 4.44 2.22 14.18 15.36 3.09 89.32 6.74 10.70 II 5.64 3.55 -2.80 4.66 -1.00 13.56 14.39 3.20 87.89 4.84 9.52 III 2.83 3.92 3.11 5.16 1.90 15.13 9.37 3.59 81.74 6.64 9.67

IV 2.75 1.26 0.18 4.56 -0.77 11.74 12.46 2.91 81.93 7.05 10.40 2014

I 8.23 3.78 -0.86 4.61 -0.49 9.56 11.43 2.91 83.09 5.28 8.38 II 2.96 3.73 4.61 4.60 3.68 8.33 10.06 2.87 86.87 4.91 8.60 III 4.42 4.12 1.05 4.53 3.47 7.55 8.39 2.78 87.07 4.88 8.47

IV 3.37 6.23 1.85 4.30 6.12 12.40 8.30 2.53 87.28 4.75 8.33 2015

I -0.75 5.33 4.09 4.31 6.53 13.47 8.39 2.53 87.61 4.65 8.09 II 4.62 5.09 4.40 4.67 6.11 14.58 9.12 2.86 88.02 5.04 7.78 III 5.39 5.04 4.92 5.12 5.80 13.71 9.18 3.28 88.08 5.08 7.52

IV 6.22 5.17 5.39 5.52 5.61 14.07 9.24 3.64 87.73 4.98 7.26 2016

I 6.86 5.63 5.87 5.83 5.78 13.87 9.13 3.94 87.42 4.86 7.00 II 7.31 5.98 6.21 6.02 6.25 13.50 9.13 4.10 87.34 4.81 6.87 III 7.65 6.32 6.50 6.17 6.69 13.12 8.99 4.22 86.93 4.78 6.74

IV 7.86 6.64 6.96 6.31 7.03 13.04 8.82 4.32 86.21 4.73 6.61 2017

I 8.00 6.74 7.40 6.45 6.99 13.60 8.44 4.41 85.49 4.66 6.48 II 8.07 6.87 7.75 6.58 6.67 13.55 8.41 4.50 85.25 4.62 6.35 III 8.08 6.97 8.01 6.69 6.35 13.70 8.28 4.60 84.42 4.59 6.22

IV 8.01 7.03 8.03 6.79 6.05 13.68 8.18 4.68 83.33 4.54 6.17

COPYRIGHT (C) , OXFORD ECONOMICS

INDIA TABLE 2 SUMMARY ITEMS

TRADE CURRENT CURRENT GOVERNMENT GOVERNMENT SHORT-TERM SPREAD REAL EQUILIBRIUM EXCHANGE

BALANCE ACCOUNT ACCOUNT FINANCIAL FINANCIAL INTEREST OVER US SHORT-TERM EXCHANGE RATE PER

($ BN) ($ BN) (% OF GDP) BALANCE BALANCE RATE SHORT-TERM INTEREST RATE PER US

(RUPEES BN) (% OF GDP) RATE RATE US DOLLAR DOLLAR

(BVI$) (BCU$) (BCUR%) (GB) (GB*100 (RSH) (RSH - (Note 1) (RXEQUIL) (RXD)

/GDP!) RSH US)

YEARS BEGINNING Q1

2011 -167.4 -62.5 -3.6 -5833.5 -7.2 9.5 9.2 -0.1 51.3 46.7 2012 -201.7 -91.5 -5.3 -5334.2 -5.8 9.5 9.0 -0.2 54.4 53.5 2013 -162.6 -49.2 -2.8 -6015.8 -5.9 9.3 9.0 -0.8 58.5 58.6 2014 -162.8 -36.4 -1.9 -5125.7 -4.5 9.1 8.8 0.6 62.7 60.4 2015 -166.5 -49.8 -2.4 -5645.4 -4.4 8.1 7.6 0.4 66.7 61.5 2016 -167.8 -48.0 -2.1 -5886.0 -4.1 7.8 6.6 1.0 70.4 63.5 2017 -177.7 -43.3 -1.7 -5866.7 -3.6 7.7 5.7 1.4 73.9 65.6

2011

I -29.4 -6.0 -1.4 -2023.4 -10.0 9.6 9.3 0.4 50.3 45.3 II -44.9 -17.4 -4.0 -1626.5 -8.4 9.4 9.2 -0.2 50.9 44.7 III -44.5 -18.9 -4.4 -1181.6 -6.0 9.4 9.1 -0.5 51.6 45.8

IV -48.6 -20.2 -4.7 -1002.0 -4.6 9.6 9.1 -0.2 52.4 51.0 2012

I -51.6 -21.7 -4.8 -1287.2 -5.6 10.3 9.8 1.7 53.1 50.3 II -43.8 -16.9 -4.2 -1904.6 -8.7 9.8 9.3 -0.4 53.9 54.2 III -47.8 -21.0 -5.3 -1464.4 -6.6 9.1 8.7 -0.8 54.9 55.2

IV -58.4 -31.9 -7.0 -678.0 -2.8 8.7 8.4 -1.3 55.8 54.1 2013

I -45.6 -18.1 -3.9 -851.9 -3.4 9.2 8.9 -1.5 56.8 54.2 II -50.5 -21.8 -5.1 -2628.2 -10.9 8.5 8.2 -1.0 57.9 55.9 III -33.3 -5.2 -1.3 -1492.7 -6.0 10.3 10.0 0.6 59.0 62.1

IV -33.2 -4.2 -0.9 -1043.0 -3.8 9.3 9.0 -1.1 60.1 62.0 2014

I -30.7 -1.2 -0.3 82.4 0.3 9.6 9.3 1.2 61.2 61.8 II -43.8 -16.1 -3.6 -2689.3 -10.1 9.2 8.9 0.6 62.2 59.6 III -42.2 -4.3 -0.9 -1478.5 -5.3 9.0 8.7 0.5 63.2 60.1

IV -46.1 -14.8 -2.9 -1040.3 -3.4 8.7 8.4 0.3 64.3 60.3 2015

I -36.8 -16.8 -3.2 134.2 0.4 8.4 8.1 0.3 65.2 60.8 II -45.6 -17.3 -3.6 -2992.9 -10.0 8.2 7.8 0.4 66.2 61.3 III -40.8 -1.6 -0.3 -1646.0 -5.3 7.9 7.5 0.4 67.2 61.8

IV -43.3 -14.0 -2.5 -1140.6 -3.3 7.9 7.1 0.6 68.1 62.3 2016

I -34.7 -17.1 -3.0 216.1 0.6 7.8 6.9 0.8 69.0 62.8 II -45.6 -17.2 -3.2 -3272.5 -9.7 7.8 6.7 0.9 69.9 63.3 III -41.7 0.5 0.1 -1703.1 -4.8 7.7 6.5 1.0 70.8 63.7

IV -45.8 -14.3 -2.3 -1126.5 -2.8 7.7 6.3 1.1 71.8 64.2 2017

I -36.4 -15.8 -2.5 499.7 1.2 7.7 6.1 1.2 72.6 64.7 II -48.5 -16.2 -2.8 -3534.9 -9.2 7.7 5.8 1.3 73.5 65.2 III -44.2 3.2 0.5 -1718.2 -4.3 7.7 5.5 1.4 74.3 66.0

IV -48.6 -14.5 -2.2 -1113.4 -2.5 7.6 5.1 1.5 75.1 66.7 Note 1 : REAL INTEREST RATE = Nominal interest rate (RSH) - % change in CPI

COPYRIGHT (C) , OXFORD ECONOMICS

India


11

12 Jun 2014

Economist: Nida Ali, Economist | Tel: +44 207 803 1423 | e-mail: [email protected]

2003-2012 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-2022

GDP 7.9 6.5 9.3 7.7 4.8 4.7 4.5 4.9 6.1 6.6 6.9 6.9 6.9 6.7 6.2 6.0

Consumption 7.3 6.9 7.5 10.1 5.7 4.0 4.7 3.9 7.4 8.0 7.8 7.4 7.0 6.7 6.3 6.3

Investment 11.3 -0.7 15.2 11.5 2.4 1.0 1.6 4.7 6.4 7.8 7.9 7.2 6.9 6.8 6.9 5.7

Government Consumption 6.9 9.2 7.9 6.2 7.6 4.4 -1.4 8.1 7.4 6.7 6.2 5.9 5.6 5.5 5.5 5.4

Exports of Goods and Services 15.6 -7.7 13.8 20.8 8.3 5.3 5.2 6.4 6.4 6.0 5.8 5.6 5.4 5.3 5.5 5.7

Imports of Goods and Services 15.9 -8.3 17.8 18.2 11.6 -1.0 3.1 6.0 6.3 7.8 7.9 8.0 8.1 8.2 8.2 6.2

Unemployment (%) 12.7 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5

Consumer Prices 7.2 9.7 10.3 9.6 9.7 10.1 8.4 7.6 6.8 6.3 6.0 5.7 5.3 5.0 4.6 6.6

Current Balance (% of GDP) -1.9 -2.2 -3.6 -3.6 -5.4 -2.8 -1.9 -2.4 -2.1 -1.7 -1.7 -1.3 -1.3 -1.3 -1.3 -1.8

Exchange Rate (per $) 46.0 48.4 45.7 46.7 53.5 58.6 60.4 61.5 63.5 65.6 68.5 70.8 72.3 73.9 75.8 67.1

General Government Balance (% of GDP) -5.1 -7.4 -4.0 -7.2 -5.8 -5.9 -4.5 -4.4 -4.1 -3.6 -3.2 -2.9 -2.6 -2.5 -2.6 -3.6

Short-term Interest Rates (%) 7.4 5.5 6.3 9.5 9.5 9.3 9.1 8.1 7.8 7.7 7.6 7.7 7.7 7.7 7.5 8.0

Working Population 2.0 2.0 2.0 1.9 1.9 1.8 1.7 1.6 1.6 1.5 1.4 1.4 1.3 1.3 1.2 1.5

Labour Supply 1.1 0.4 0.4 0.7 1.1 1.5 1.7 1.8 1.9 2.0 2.0 2.0 1.8 1.8 1.6 1.8

Participation Ratio (%) 67.7 66.8 65.7 64.7 63.9 63.4 63.2 63.2 63.3 63.5 63.8 64.2 64.5 64.9 65.2 63.9

Labour productivity 6.6 5.9 8.9 7.0 3.7 3.2 2.8 3.1 4.1 4.5 4.8 4.9 5.0 4.8 4.4 4.2

Employment 1.2 0.6 0.4 0.7 1.1 1.5 1.7 1.8 1.9 2.0 2.0 2.0 1.8 1.8 1.6 1.8

Output gap (% of potential GDP) -0.1 0.1 1.0 1.4 0.0 -1.6 -2.7 -3.6 -3.5 -2.8 -2.1 -1.4 -0.9 -0.6 -0.4 -1.9

Annual percentage changes unless otherwise specified

Long-Term Forecast for India

India


12 12

12 Jun 2014

Economist: Nida Ali, Economist | Tel: +44 207 803 1423 | e-mail: [email protected]

Key Facts

PoliticsChief of state: President Pranab MUKHERJEE

Head of government: Prime Minister Narendra MODI

Political system: Federal republic

Date of next presidential election: July 2017

Date of next legislative election: 2019

Currency: Indian rupee (INR)

Long-term economic & social development1980 1990 2000 2012*

GDP per capita (US$) 271 376 455 1489

Inflation (%) 11.4 9.0 4.0 9.7

Population (mn) 699 869 1045 1249

Urban population (% of total) 23.1 25.5 27.7 31.7

Life expectancy (years) 55.4 58.5 62.2 66.0

Source : Oxford Economics & World Bank

Structure of GDP by output * 2012 or latest

2012 available year

Agriculture 17.4% Source : CIA Factbook

Industry 25.8% Location : Southern Asia, bordering the Arabian Sea and the Bay

Services 56.9% of Bengal, between Burma and Pakistan (CIA Factbook)

Source : World Bank

Long-term sovereign credit ratings & outlook Corruption perceptions index 2013Foreign currency Local currency Score

Fitch BBB- (Stable) BBB- (Stable) Developed economies (average) 74.5

Moody's Baa3 (Stable) Baa3 (Stable) Emerging economies (average) 37.3

S&P BBB- (Negative) BBB- (Negative) India 36.0

Emerging Asia 34.7

Source: Transparency International

Structural economic indicators Scoring system 100 = highly clean, 0 = highly corrupt

1990 1995 2000 2012*

Current account (US$ billion) -7.4 -5.9 -4.9 -91.5

Trade balance (US$ billion) -7.7 -10.7 -16.6 -201.7

FDI (US$ billion) 0.2 2.0 3.1 15.7

Debt service (US$ billion) 8.1 13.6 11.0 30.7

Debt service (% of exports) 34.9 34.4 17.5 6.9

External debt (% of GDP) 26.2 26.0 21.2 21.3

Oil production (000 bpd) 660 703 646 777

Oil consumption (000 bpd) 1168 1575 2127 3418

Source : Oxford Economics / World Bank / EIA

Destination of goods' exports (2012)European Union (27) 16.7%

United States 12.8%

United Arab Emirates 12.3%

China 5.1%

Singapore 4.7%

Source : WTO Source : WTO

Composition of goods & services exports,

2012

Agricultural

products

9.8%

Fuels and

mining

products

14.9%

Manufactures

41.6%

Other goods

exports

1.7%

Transportation

3.9%

Travel

4.1%

Other

commercial

services

24.0%

India


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