Indian economy Essays

Indian economy Essays Indian economy Essay Indian economy Essay A year of improvement and surprises Indias growth environment has been on a roller coaster ride since the credit crisis. After growing at a healthy rate of 8. 9%YoY (average) during 2004-07, the growth will decelerate sharply to a near-decade low of 4. 8%YoY in FY14 according to our estimates. While we believe that growth in India is stabilising, the recovery will be very gradual. We expect Indias GDP growth to pick up only modestly to 5. 4%YoY in FYI 5 and further to 6. 1%YoY in FY16. For this recovery to sustain without reigniting he macro stability risks, the investment cycle needs to pick up ahead of consumption. We believe the parliamentary elections due in May 2014 will be the next catalyst. Momentum to pick up pace post elections We have assumed a stable coalition government in the next parliamentary election as our base case scenario. While the economy is showing some incipient signs of revival, the recovery does not seem to be broad based. We expect external demand to be the key growth driver in FYI 5 while consumption and investments are likely to stabilise at ow levels. We also expect some pick up in capex trend largely on government initiatives to clear logjams to speed up project implementation. However, the high cost of capital to manage inflationary pressures, a cut in government spending to meet deficit targets, political uncertainty constraining the capex cycle recovery and a lack of structural reforms will continue to weigh on overall growth expectations over the next 6-9 months, in our view. We expect investments mainly the private corporate apex to show a credible improvement only in FY16 once political uncertainty is resolved. Macro stability risks seem to be improving on the margin The delay in QE tapering by the Fed and quick measures taken by the Indian policymakers including: (a) clamp down on gold imports; (b) measures to attract dollar deposits via the FX swap window; (c) speeding up project implementation in the investment space; and, (d) a sustained increase in diesel prices have all helped boost investor sentiment, providing some breathing space near term. However, we elieve inflationary pressures will continue to dominate investors concern over the coming months. Upside and downside risks to our outlook The upside and downside risks to our growth estimates stem from (a) the pace of QE tapering and rise in US real rates; (b) the outcome of next years parliamentary elections; and, (c) inflation, mainly CPI. While a stable government should help push the much needed policy reforms to bring the economy back on the growth track, a weak coalition (Congress-led or BJP-led) or a Third-Front government might lack the olitical will to undertake reforms and boost investor/business confidence. We believe the upside risks (†70-90bps) to our growth forecasts stem from (a) gradual rise in US real rates and (b) a clear majority in the parliamentary elections and/or (c) faster than expected moderation in core CPI inflation. The downside risks (†80-100bps) include a faster rise in US real rates and/or a weak election outcome, which would increase uncertainty and stall the reform momentum. Indian economy By ankurgl 234