2012-11-15 19:44:51 - India Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com
In line with our expectations, the administration of Indian Prime Minister Manmohan Singh re-ignited the country´s reform drive in September and October in a bid to galvanise the country´s ailing economy. While this has come at the political cost of a weakened coalition, we believe that New Delhi´s emboldened stance should help improve both domestic and foreign investor sentiment and mitigate rating agency concerns.
While the current state of India´s economy remains precarious, we see sufficient evidence in leading indicators, such as purchasing managers indices and money supply, to suggest that macro conditions will improve in the coming quarters.
India´s fiscal position may improve slightly in the near term of the back of the diesel subsidy hike and greater divestment proceeds. However,
any progress is likely to be unwound in FY2013/14 (April-March), as the Indian National Congress readies itself for a challenging general election campaign by ramping up populist spending.
An comeback in the Indian rupee has been one of our flagship macro and market calls for the region in 2012. While the currency has come a long way since August, we believe that further medium-term appreciation is on the cards.
Major Forecast Changes
We remain distinctly above consensus on India´s economic prospects this fiscal year and next. We are projecting Indian real GDP growth to come in at 5.7% in FY2012/13 (versus consensus of 5.4%) and 6.8% in FY2013/14 (versus consensus of 5.8%).
We have revised our fiscal forecasts for FY2013/14 to take into account greater populist spending ahead of the general elections.
We are pencilling in a central government fiscal deficit worth 5.9% of GDP from a projected 5.7% in FY2012/13.
Key Risks To Outlook
Downside Risks To Near-Term Growth Outlook: The risk of continued fiscal indiscipline and the possibility of a reversal in reform could lead to persistent inflationary pressures, a prolonged monetary pause and a slower-than-expected turnaround in investment activity.
Upside Growth Risks: Corporate India is generally speaking cash rich and looking for viable investment opportunities. A further broadening of reform momentum could unleash a fresh wave of investment in India, although the country´s politics make such a scenario unlikely.
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