2013-02-19 10:07:37 - Fast Market Research recommends "India Business Forecast Report Q2 2013" from Business Monitor International, now available
Conditions are ripe for investment spending to lead an economic growth upturn, aided at the margin by an improving export performance.
That said, the government's persistent fiscal failings will prevent a more pronounced growth recovery, by keeping interest rates high and weighing on overall investor sentiment.
The ruling United Progressive Alliance (UPA) will outline India's most significant budget for several years on February 28. On balance, we see a mixture of both populism and pragmatism which, although unlikely to fully satisfy either the electorate or investors, should prevent a major fiscal unravelling this year.
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We do not envisage an extended easing cycle in the coming quarters, as external and domestic demand improve at
the margin and the lack of concrete fiscal retrenchment keep inflationary pressures historically high. We see scope for 50 basis points of cuts by end- FY2013/14 (April-March).
Major Forecast Changes
We remain above consensus on India's economic growth outlook, calling for headline expansion of 5.5% and 6.1% for FY2012/13 and FY2013/14 (versus market expectations of 5.3% and 5.5%, respectively).
We have revised down our long-term forecasts for the Indian rupee due to the persistence of India's twin fiscal and current account deficits. We now see only mild appreciation to INR52.00/US$ by end-FY2013/14.
Key Risks To Outlook
Downside Risks To Near-Term Growth Outlook: A possible sovereign ratings downgrade to junk status is arguably the greatest risk to our benign growth outlook.
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.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
What Would A Modi Premiership Mean For Investors?
- Following a comprehensive victory in December's Gujarat state polls, Bharatiya Janata Party (BJP) heavyweight Narenda Modi is in pole position to lead the opposition bid in the 2014 general elections. Business-friendly policies and a strong economic track record in Gujarat suggest that a Modi-led national government would sit well with foreign investors. Still, given that the chief minister remains a divisive figure and that the opposition has failed to fully capitalise on the ruling Indian National Congress (INC)'s eroding support base, we believe that the BJP would struggle to win an outright majority and would therefore see its policy agenda hamstrung by coalition politics in a similar vein to the current administration.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
The Test Of Rising Prosperity
- While India's 60-year-old democracy has withstood the test of poverty, the coming decade will show whether it can withstand the test of rising prosperity. Against a backdrop of economic growth, India's government will need to work even harder to combat poverty and inequality; invest in education and infrastructure; and clamp down on corruption in order to satisfy an increasingly informed electorate. Meanwhile, icy relations with neighbouring Pakistan and growing competition with China will dominate India's international agenda. Failure to address these shortcomings could see social disharmony and pockets of fundamentalism continue to ferment at the grassroots level.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Growth Upturn To Gain Traction In FY2013/14
- We remain above consensus on India's economic growth outlook, calling for headline expansion of 5.5% and 6.1% for FY2012/13 and FY2013/14 (versus market expectations of 5.3% and 5.5%, respectively). Conditions are sufficiently ripe for investment spending to lead a growth upturn, aided at the margin by an improving export performance. That said, the government's persistent fiscal failings will prevent a more pronounced growth recovery, by keeping interest rates high and weighing on overall investor sentiment. A possible ratings downgrade, while not our core scenario, is arguably the greatest risk to our benign outlook.
TABLE: ECONOMIC ACTIVITY
FY2013/14 Budget Preview: Populism Or Pragmatism?
- The ruling United Progressive Alliance (UPA) will outline India's most significant budget for several years on February 28. The authorities could decided to ramp up populist spending ahead of the 2014 general elections, although such a strategy would put at risk the country's coveted investment grade sovereign rating.
TABLE: FISCAL POLICY
RBI Paves Way For Rate Cut
Full Table of Contents is available at:
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