Indian Economy

India: Economic data

• The domestic political scene will be dominated in the early part of the forecast period by the next general election, which is due by May 2009. The increasing importance of regional parties will ensure that the next government will again be a coalition, likely to be led by either the current ruling party, the Indian National Congress, or by the main opposition Bharatiya Janata Party. An alliance of regional and left-wing parties is also a possibility.
• Relations with Pakistan are set to remain under stress in the wake of the December 2008 terrorist attack on Mumbai. The process of normalising bilateral ties will come to a halt, and tensions may continue to escalate in the early part of the forecast period. However, the Economist Intelligence Unit does not expect the two countries to resume armed conflict.
• A number of factors will conspire to keep the budget deficit in the range of 4-4.5% of GDP in fiscal year 2008/09 (April-March) and 2009/10, but it should then narrow gradually, to reach just over 3% of GDP by the end of the forecast period.
• The global financial crisis has caused a major upheaval in India's policy priorities, as risks to economic growth now heavily outweigh inflationary threats. Monetary policy will be eased further in 2009. Real interest rates will remain negative this year, but should become positive in 2010-13 as monetary policy is adjusted to a more neutral setting.
• Global deleveraging and moves to reduce risk exposure will hit India hard, and real GDP growth (on an expenditure basis) is estimated at 5.6% in 2008/09 and is forecast to slow to 5.2% in 2009/10, down from 9% in 2007/08. The economy should regain momentum in the remainder of the forecast period, with real GDP growth averaging 7.6% per year between 2010/11 and 2013/14. Information technology (IT) and IT-enabled services (ITES) output will continue to be among India's best-performing sectors, thanks to the country's cost advantages in these areas.
• Although the merchandise trade account will record an expanding deficit from 2009, reflecting an increase in local demand for consumer goods, the deficit will be largely offset by the rising services surplus (driven by foreign earnings from IT and ITES) and continued inflows of remittances. Overall, the current-account deficit is forecast at the equivalent of 4% of GDP on average in 2009-13.