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
Growing Headwinds Despite Strong GDP Print
8
GDP By Expenditure Outlook
10
TABLE: GDP GROWTH FORECASTS
10
TABLE: PRIVATE CONSUMPTION FORECASTS
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
11
TABLE: NET EXPORTS FORECASTS
11
Fiscal Policy And Public Debt Outlook
11
FY2016/17 Budget: Adherence to Fiscal Prudence A Positive Sign
11
Structural Fiscal Position
12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
12
Currency Forecast
13
INR: Weakness To Be Capped
13
TABLE: BMI CURRENCY FORECAST
14
Outlook On External Position
15
TABLE: MAIN EXPORT AND IMPORT PARTNERS
16
TABLE: MAIN EXPORTS AND IMPORTS
16
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
16
Monetary Policy
17
Dovish RBI To Ease Further
17
Monetary Policy Framework
18
Chapter 2: 10-Year Forecast
21
The Indian Economy To 2025
21
Will Indian Growth Live Up To Expectations-
21
TABLE: LONG-TERM MACROECONOMIC FORECASTS
21
Chapter 3: Political Outlook
25
SWOT Analysis
25
BMI Political Risk Index
25
Domestic Politics
26
Budget Boost To Business Environment But Not State Election Prospects
26
TABLE: POLITICAL OVERVIEW
26
Long-Term Political Outlook
28
Gradual Reform To Prevail Over The Coming Decade
28
Chapter 4: Operational Risk
33
SWOT Analysis
33
Operational Risk Index
33
Operational Risk
34
TABLE: OPERATIONAL RISK
34
Economic Openness
35
TABLE: TOP 5 IMPORT PARTNERS & PRODUCT IMPORTS, USDMN
35
TABLE: FREE TRADE AGREEMENTS
36
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
37
Availability Of Labour
40
TABLE: AVAILABILITY OF LABOUR RISK
41
TABLE: TOP 10 SOURCE COUNTRIES FOR MIGRANT WORKERS
42
Chapter 5: BMI Global Macro Outlook
45
Global Macro Outlook
45
Emerging Markets Nearing Inflexion Point
45
TABLE: GLOBAL ASSUMPTIONS
45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
46
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
47
TABLE: MACROECONOMIC DATA & FORECASTS
49

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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