India Country Risk Report

Published 28 January 2015 | Quarterly

  • 52 pages
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$1,195.00
India Country Risk Report

Core Views

  • The strength of the electoral win by the opposition Bharatiya Janata Party (BJP) at the lower house (Lok Sabha) elections in India surprised many - the party swept 282 seats of the 543-seat parliament, 10 more seats than it needs for a majority. Prime Minister Narendra Modi led his party to victory with a presidential-style campaign never seen before and overcame questions about his Hindu nationalist background. While we, like many others, hold high expectations for Modi's team to deliver on its promises to clear the road blocks obstructing infrastructure projects, we hold a more downbeat outlook on the prospects for the quick liberalisation of sectors such as mining, oil and gas, and insurance.

  • We maintain our above consensus outlook for India's real GDP growth, expecting the return of investor and business confidence to support an economic growth revival in FY2014/15 (April-March). While the pace of recovery will also depend on the timing of monetary easing, we have seen optimistic signs from June manufacturing and services purchasing managers' index readings, indicating that both sectors are in expansion. Our upbeat outlook is reflected in our real GDP growth forecast of 5.6%, which sits above consensus expectations of 5.4%.

  • Although headline inflation has eased somewhat in India, they remain at elevated levels, amongst the highest in the region. Acute food price pressures, as supplies often constrained by logistical inefficiencies and prices, further boosted by minimum support levels dictated by the government, lie at the heart of the problem. Expansionary government policy further exacerbates these pressures. Absent a major reduction in subsidies and minimum support prices for agricultural goods, and together with weaker-than-usual monsoon rains, there is a risk that the Reserve Bank of India (RBI) may be forced to keep interest rates higher for longer in FY2014/15.

  • The Indian rupee remains one of our favourite currencies in the region...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Himalayan Border Rivalry To Strain Sino-Indian Relations
8
The ongoing standoff over the Himalayan border between India and China will continue to strain relations as the dispute is likely to
The ongoing standoff over the Himalayan border between India and China will continue to strain relations as the dispute is likely to
persist for the foreseeable future
TABLE: POLITICAL OVERVIEW
8
Long-Term Political Outlook
10
Gradual Reform To Prevail Over The Coming Decade
10
India's new government has the strongest mandate in 30 years to transform the economic and political landscape, and make the country
India's new government has the strongest mandate in 30 years to transform the economic and political landscape, and make the country
more prosperous and business-friendly
The main challenges will be tackling obstructionism from regional governments and traditional
interest groups, and ensuring that future economic growth consolidates a politically moderate middle class
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Economy To Stay Resilient Despite Q2FY2014/15 Slowdown
14
Despite real GDP growth slowing to 5
3% year-on-year (y-o-y) in the second quarter of FY2014/15 (quarter ending September) from
5
7% y-o-y in the previous quarter, the outlook for the Indian economy remains strong on the back of the government's pro-growth
agenda and private consumption which will remain resilient
As such, we maintain our forecast for real GDP growth to accelerate to
5
TABLE: Economic Activity
14
Fiscal Policy
16
Public Debt-To-GDP Ratio To Continue Falling
16
India's public debt-to-GDP ratio has been on a downtrend over the past decade, falling to 72
2%
in FY2004/05
7% in FY2015/16, owing to the country's
economic recovery and improvements in the government's fiscal deficit
TABLE: Fiscal Policy
16
Monetary Policy
18
Rate Cut On The Cards As RBI Turns Dovish
18
We expect the Reserve Bank of India (RBI) to ease its benchmark repurchase (repo) rate by 25 basis points (bps) to 7
75% by the
end of Q4FY2014/15 (April-March) as it turns its focus towards supporting economic growth amid falling price pressures
Beyond
FY2014/15, the central bank is likely to cut interest rates further by a cumulative 75 bps by the end of March 2016 given medium-term
FY2014/15, the central bank is likely to cut interest rates further by a cumulative 75 bps by the end of March 2016 given medium-term
disinflationary dynamics
Moreover, the probability of the RBI reducing the repo rate at its next meeting on February 3 2015 is increasing
as it shifts to a dovish stance, which is evident from its latest monetary policy meeting statement on December 2 2014
TABLE: Monetary Policy
19
Currency Forecast
19
INR: Neutral Outlook As Currency Remains Resilient
19
The Indian rupee has been the top performer in the Asian region over the course of 2014 in spot and carry-adjusted terms and we
The Indian rupee has been the top performer in the Asian region over the course of 2014 in spot and carry-adjusted terms and we
expect the unit to remain relatively resilient in 2015
The currency will decline slightly on the back of general weakness among emerging
market currencies as well as depreciatory pressures from the accumulation of reserves by the central bank
However, this weakness will
not be excessive as increased inflows will lend some support
TABLE: BMI CURRENCY FORECAST
20
TABLE: Curent Account
21
Chapter 3: 10-Year Forecast
23
The Indian Economy To 2024
23
Will Indian Growth Live Up To Expectations-
23
Improving demographics, structural reforms and trade liberalisation in India during the 1990s set the stage for an explosion in the
Improving demographics, structural reforms and trade liberalisation in India during the 1990s set the stage for an explosion in the
country's domestic savings rate, which, in turn, ignited economic growth in the 2000s
Going forward, favourable demographics and
trade integration should remain strong tailwinds
However, should India's reform momentum continue to disappoint, the country could
struggle to generate sufficient savings growth to finance its investment needs, with headline economic growth suffering as a result
With
this in mind, we are happy to maintain a sanguine, if cautious, long-term growth outlook with a 10-year average real GDP growth rate of
this in mind, we are happy to maintain a sanguine, if cautious, long-term growth outlook with a 10-year average real GDP growth rate of
6
TABLE: Long-Term Macroeconomic Forecasts
23
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
TABLE: Operational Risk
28
Availability of Labour
30
TABLE: Asia - Availability Of Labour Risk
30
TABLE: Top Ten Source Countries For Migrant Workers
31
Crime Risk
33
TABLE: Asia - Crime Risks
34
TABLE: Crime Rates
35
Chapter 5: Key Sectors
37
Autos
37
TABLE: Aut os Total Mar ket - Hist orical Data And Forecasts
38
Food & Drink
41
TABLE: Food Consumption Indicat ors - Historical Data & Forecasts
42
TABLE: Hot Drink Value /Volume Sales, Production & Trade - Historical Data & Forecasts
44
Other Key Sectors
49
TABLE: Oil & Gas Sect or Key Indicators
49
TABLE: Pharma Sect or Key Indicators
49
TABLE: Infrastructure Sector Key Indicators
49
TABLE: Telecoms Sector Key Indicators
50
TABLE: Defence & Security Sect or Key Indicat ors
50
TABLE: Freight Key Indicat ors
50
Chapter 6: BMI Global Assumptions
51
Global Outlook
51
New Era For Oil
51
Table: Global Assumptions
51
Table : Devel oped States , Real GDP Growt H, %
52
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
52
Table : Emerging Markets , Real GDP Growth , %
53

The India Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in India. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of India's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI  Research.

Key Uses

  • Forecast the pace and stability of India's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise India's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in India, including currency volatility, the commodity price boom and protectionist policies.

The India Country Risk Report by BMI  Research includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the India' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for India through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The India Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for India and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on India, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in India over the next 5-years?

BMI's India country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the India Market - Political Strengths, Weaknesses, Opportunities and Threats facing India.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for India's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of India’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark India's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in India?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks India against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate India’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in India will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in India's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express