VMW - delivering efficiency with insight....

 

India's Economic Outlook 2012

 

Last moderated on: Monday, Apr 30, 2012

 

 

Political Risk: (Outlook - Negative) The UNIDOW FIS downgraded the India's Political Outlook after a critical review. The Indian Prime Minister Manmohan Singh is proved to be incapable of handling the complex and difficult situations in his government. The Singh's government comprising different parties with almost contrarian to his views. With executive powers - the top commander of the Indian Government has been under intense pressure. His ruling coalition federal government has failed to commence the important economic reforms, which took a considerable toll on the economy. Assembly elections specifically in Uttar Pradesh was the key event which changed the political theatre. The losing ground of two major political parties of the country, the Congress and the Bharatiya Janata Party (BJP), would definitely make India a battleground  in 2014 Lok Sabha elections and is gain for anti-capitalist and anti-socialist regional political parties, which is not favorable for India economy. In 2011, the Indian government faced every month with a disapproval from the people, coming out on street in amass protesting against the government's inactivity on corruption and irregularities in the system.

 

Economic Policies: (Outlook - On Review) The UNIDOW FIS has predicted the alarming levels of fiscal deficit last year in its Economic Review report, which was published on the VMW Blog. Even though RBI has reduced its policy rates by 50 bps, UNIDOW does not change its stance on the economic policy and downgrade followed by the federal government's inaction on the subject of overspending and fiscal policies to stimulate the economy and command over the unbrookable inflation. The current fall in inflation is largely driven by change in base year and the key index for RBI - manufacturing index is restless. RBI is giving full concentration on the inflation problem, which is undermining the fragile economic growth and revised the policy rates by number of times to contain the rising risk of inflation in the economy. As per VMW's observation, RBI, alongside inflation concern, would think about the economic expansion of the country since the liquidity situation could get distressed and will put India's economic growth at risk. Moreover, the higher cost of credit will certainly have an impact in the corporate balance sheet, which will prevent the short term foreign inflows (i.e. FII inflow) in the country to finance the current account (CA) deficit. RBI might not be concerned about the CA deficit.

 

Overall Economic Prospect: (Outlook - Stable) Despite the rising risk of political and economic policies, the overall economic outlook of India in the long run is still intact. There could be a greater risk of high fiscal deficit followed by the increase in current account deficit due to sharp decline in Indian Rupee and rise in oil prices, which will increase reduce the revenue to the government. Tighter monetary policy and a modest reduction in the deficit will help cool demand somewhat. After moderating towards the end of 2010, inflation has veered up again and remains high. Moreover, inflationary pressures have become more generalized, with non-food prices accelerating.

 

 

 

Details	2008	2009	2010	2011	2012
Real GDP Growth	4.9	9.1	9.6	8.5	8.6
Inflation*	6.7	7.5	10.2	8.4	6.2
Consumer Price Index (CPI)**	9.1	12.4	10.3	8.9	6.6
Wholesale Price Index (WPI)***	8.0	3.6	9.4	8.8	6.2
Short-Term Interest Rate^	7.4	4.8	6.0	7.6	8.3
Long-Term Interest Rate^^	7.6	7.3	7.9	8.3	8.3
Fiscal Balance (per cent of GDP)	-8.5	-9.5	-7.3	-6.8	-6.3
Current Account Balance (% of GDP)	-2.4	-2.7	-2.7	-2.9	-3.0

 

All figures are in per cent, unless otherwise mentioned.

 

1.  *Percentage change in GDP Deflator from previous year.

2.  **Consumer Price Index (CPI) for Industrial Workers.

3.  ***All Commodities.

4.  ^Mumbai three months offer rate.

5.  ^^10 year government Bond.

 

Data Source: OECD, World Bank, VMW Analytic Services and IMF.

Ratings and Economic Outlook provided by UNIDOW Financial Intelligence.

 

 

Key Economic Indicators of the Indian Sub-continent Countries.

 

 

Source: Respective central banks; public debt and fiscal deficit is in percent of total GDP; interest rates are quoted as the central bank's discount rate.