India Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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India Country Risk Report
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Indian Government To Continue Improving Business Environment

Core Views

  • The Indian government led by the Bharatiya Janata Party (BJP) has initiated various reforms in its first two years in office, and it will continue to enact incremental rather than big bang reforms over the coming years. That said, the lack of majority in the Rajya Sabha, India's 245-seat upper house, will remain a hurdle to the implementation of large-scale reforms. State elections, which will continue to take place over the coming years, will determine whether the BJP will attain an upper house majority by the time its term end in May 2019.

  • We remain broadly constructive on the Indian economy, and it will remain as the fastest growing major economy in Asia owing to the government's pro-business initiatives and accommodative monetary policy by the central bank. We expect the country's manufacturing and services sectors to continue to perform strongly, and we maintain our FY2016/17 (April-March) and FY2017/18 real GDP growth forecast of 7.2% and 6.9%, respectively. However, the economy is still facing ongoing challenges from weak private investment in the infrastructure sector and external headwinds.

  • The Reserve Bank of India (RBI) held its repurchase (repo) rate unchanged at 6.50% during its June 7 monetary policy meeting, and we forecast that the central bank will cut its benchmark policy rate by an additional 25bps to 6.25% by the end of FY2016/17 in a bid to provide continued support to the economy. The RBI remained dovish, and will continue to seek to improve the transmission mechanism. Subdued inflation in FY2016/17 will provide sufficient room for a reduction in the repo rate.

  • The Indian government delivered its FY2016/17 union budget on February 29, sticking to its fiscal deficit targets of 3.5% of GDP in FY2016/17 and 3.0% in FY2017/18, which we believe is positive for macro-stability. That said, we forecast the central government's fiscal deficit as a share of GDP to come in at 3.7% in FY2016/17, as headwinds to revenue expansion and expenditure reduction are likely to persist.

  • The Indian rupee will depreciate gradually against the US dollar over the coming years, and we forecast the unit to average INR68.25/USD in 2016 and INR69.50/USD in 2017. The RBI will continue to allow the currency to weaken in order to keep the currency competitive against its regional peers. However, rupee weakness will be capped amid continued foreign direct investment owing to an improvement in business environment.

Major Forecast Changes

  • We revised our FY2016/17 current account deficit forecast to 1.6% of GDP (from 1.3% previously) as India's external accounts will face headwinds from weak global demand and rising global oil prices.

Key Risks

  • Upside Risks To Inflation: While we maintain our expectations for the RBI to cut rates in a bid to reignite credit growth and investment, we note that the potential of elevated levels of inflation could force the central bank to hike rates as it did in late 2013, which will not only pose upside risks to our policy rate forecasts, but also downside risks to real GDP growth. Moreover, should the BJP-led government fail to gather the support it needs to implement fiscal cutbacks in order to maintain the deficit close to the level in FY2015/16, the elevated levels of fiscal spending will certainly present another source of upside pressure to prices.

  • Downside Risks To Growth: The ongoing reform drive in India will be a key driver of the country's economic recovery. High levels of bureaucracy, combined with vested interests and significant levels of legislative autonomy for state governments, mean that Prime Minister Narendra Modi could struggle to implement key reforms. A lack of progress in these key reforms could weigh on India's growth trajectory.

Macroeconomic Forecasts (India 2014-2017)
Indicator 2014 2015e 2016f 2017f
e/f=BMI estimate/forecast. Source: National Sources, BMI
Real GDP growth, % y-o-y 7.2 7.6 7.2 6.9
Nominal GDP, USDbn 1,879.7 1,914.1 2,017.9 2,208.0
Consumer price inflation, % y-o-y, eop 5.3 5.8 4.8 4.8
Exchange rate INR/USD, eop 63.04 66.15 69.00 70.00
Budget balance, % of GDP -6.9 -6.8 -6.6 -6.0
Current account balance, % of GDP -1.4 -1.2 -1.6 -1.6
Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Still Asia's Outperformer, But Headwinds Will Persist
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Fiscal Policy And Public Debt Outlook
11
Key Challenges To Constructive Fiscal Outlook
11
TABLE: SEVENTH PAY COMMISSION: SUMMARY OF FINANCIAL IMPACT
11
Structural Fiscal Position
13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
13
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
13
External Trade And Investment Outlook
14
FDI Supports External Finances Amid Risks To Trade Balance
14
Outlook On External Position
15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
15
TABLE: MAIN EXPORT AND IMPORT PARTNERS
16
TABLE: MAIN EXPORTS AND IMPORTS
16
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
16
Monetary Policy
17
Further Easing Still Likely Despite June Hold
17
Monetary Policy Framework
18
TABLE: MONETARY POLICY FORECASTS
18
4 www
com Business Monitor International Ltd
INDIA Q4 2016
INDIA Q4 2016
Currency Forecast
19
INR: Depreciation To Be Gradual Despite Global Uncertainty
19
TABLE: BMI CURRENCY FORECAST
19
Chapter 2: 10-Year Forecast
23
The Indian Economy To 2025
23
Will Indian Growth Live Up To Expectations-
23
TABLE: LONG-TERM MACROECONOMIC FORECASTS
23
Chapter 3: Political Outlook
27
SWOT Analysis
27
BMI Political Risk Index
27
Domestic Politics
28
GST Reforms Likely To Get Under Way While Local Election Fever Heats Up
28
Long-Term Political Outlook
29
Gradual Reform To Prevail Over The Coming Decade
29
Chapter 4: Operational Risk
33
SWOT Analysis
33
Operational Risk Index
33
Operational Risk
34
TABLE: OPERATIONAL RISK
34
Market Size And Utilities
35
TABLE: ASIA - MARKET SIZE AND UTILITIES RISK
36
Labour Costs
39
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE
40
Chapter 5: BMI Global Macro Outlook
43
Global Macro Outlook
43
Brexit Risk Casts A Long Shadow
43
TABLE: GLOBAL ASSUMPTIONS
43
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
44
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
45
TABLE: MACROECONOMIC DATA & FORECASTS
47

Assess your risk exposure in India with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in India with confidence.

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