India

Highlights
Indias GDP grew by 4.8% year-on-year in The current account deficit narrowed to 3.8%

Q1 this year. This was slightly stronger than expected, but we have lowered our growth forecasts for 2013 and 2014 in part due to our more cautious view about the pace of the recovery in global trade. GDP is now forecast to increase by 5.1% this year and 6.4% in 2014, down from our previous projections of 5.2% and 7.2% respectively.
The rupee has fallen sharply in the past few

weeks, and is now about 10% lower than at the start of May. This has adverse implications for the economy, not least the possibility of exacerbating inflationary pressures and limiting the RBIs ability to loosen monetary policy.

of GDP in Q1 from 7% in the previous quarter. While this is encouraging, the deficit is still well above historical norms and poses a downside risk to the outlook. To curb gold imports one of the reasons contributing to the high deficit the government recently issued inflation-linked bonds to provide investors with a financial instrument to hedge against inflation. This is, in our view, a step in the right direction.
Also a positive note, the Fitch rating agency

has upgraded the outlook on Indias BBBsovereign credit rating from negative to stable due to lower inflation and progress in reining in the fiscal deficit.

Forecast for India *

(Annual percentage changes unless specified)

2012
Domestic Demand Private Consumption Fixed Investment Stockbuilding & discrep (% of GDP) Government Consumption Exports of Goods and Services Imports of Goods and Services GDP Industrial Production Consumer Prices Current Balance (% of GDP) Government Budget (% of GDP) Current Account ($bn) Trade Balance ($bn) Short-Term Interest Rate (%) Exchange Rate (Rupee per US$) * Refers to Calendar year 5.5 5.3 1.5 6.0 5.8 6.6 11.7 5.1 0.7 9.3 -5.1 -5.5 -93.4 -202.0 9.47 53.5

2013
5.4 5.9 4.2 6.6 1.9 4.4 6.9 5.1 3.3 9.5 -4.8 -5.0 -95.4 -217.9 8.56 56.2

2014
6.6 7.3 6.0 6.3 7.2 9.3 9.2 6.4 6.9 7.1 -4.5 -4.7 -99.2 -241.3 7.67 57.5

2015
8.0 7.7 8.0 6.6 7.1 11.8 11.9 7.5 8.2 6.1 -4.3 -3.9 -103.7 -268.0 7.74 59.9

2016
7.9 7.7 8.0 6.8 6.9 12.4 11.9 7.6 8.6 5.1 -4.2 -3.2 -107.6 -295.9 7.75 62.7

2017
7.6 7.7 7.9 6.7 6.9 12.2 11.2 7.4 8.1 4.2 -3.9 -2.7 -107.2 -321.0 7.67 65.6

For further information contact Nida Ali (nali@oxfordeconomics.com)

Country Economic Forecast: 28 June 2013

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India Forecast Overview

Growth forecast revised down

India: Contributions to GDP

% year 14 12 10 8 6 4 2 0 -2 -4 -6 1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics

Indias GDP grew by 4.8% year-on-year in Q1, up slightly from 4.7% in the previous quarter. This was stronger than we had expected given the relatively downbeat evidence from monthly indicators. However, a number of external and domestic factors have led us to lower our growth forecast for this year and next. On the external front, the upturn in the global economy is looking less robust than expected and we have scaled back our expectations about the pace of recovery in world trade. As a result, we have downgraded growth in China, which will have spillover effects for the rest of Asia including India. And on the domestic front, structural issues are likely to continue to weigh on investment, which will have adverse effects for the rest of the economy. We now expect GDP to grow 5.1% in 2013 and 6.4% in 2014, down from our previous projections of 5.2% and 7.2% respectively.

GDP

Domestic demand

F'cast

Net exports

India: Inflation
% year 18 16 14 12 Consumer prices (industrial workers)

but headwinds beginning to ease

10 8 6 4 2 0 -2 1995 1997 1999 2001 2003 Producer prices 2005 2007 2009 2011 2013

The immediate outlook remains challenging, but conditions are set to improve from the beginning of 2014. Slow moderation in inflation high inflation held back consumption for much of 2012 and the annual rate of CPI inflation accelerated to more than 11% in Q1. But core wholesale price (WPI) inflation has fallen steadily over the past six months as a result of the economy operating below capacity. And the moderation will be helped by a slower pace of fuel price rises. WPI inflation posted a reading of less than 5% in both April and May, down from 7.6% in 2012. This is expected to feed through to CPI inflation, which we forecast to decline to 7.1% in 2014. Lower interest rates the worsening economic outlook has prompted the Reserve Bank of India (RBI) to cut the repo rate by a total of 75bp since January. Although high inflation and the depreciation of the rupee over the past seven weeks down to a record low of INR60 to the US$ following the Feds statements about the tapering of QE in the US mean that the RBI is unlikely to cut rates further in the very near term, we do expect monetary policy to be loosened again from Q4 onwards, as inflation eases

Source: India Ministry of Commerce & Industry

India: Monetary conditions

% 18 16 14 12 10 8 6 4 2 0 1996 Repo interest rate Inflation F'cast

1999

2002

2005

2008

2011

2014

2017

Source: Oxford Economics

Country Economic Forecast: 28 June 2013

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India
and the currency recovers. This will provide some support to consumption and investment. We therefore expect domestic demand growth to accelerate to 6.6% in 2014 from 5.4% this year. Gradually improving external conditions downgrades to our forecast for global growth mean that export growth will slow in 2013. But as activity in the US and China picks up, export growth is likely to accelerate in 2014. We expect exports growth of 4.4% this year, accelerating to 9.3% in 2014.

India: Consumption and investment

% year 24 20 16 12 8 4 0 -4 Consumption Investment Forecast

Investment environment still poor

-8 -12 1996

Indias economy continues to be held back by weak investment, particularly in the private sector. The 2013/14 budget was disappointingly short of measures to stimulate private businesses. Government investment expenditure was cut and tax rates on corporations were raised to increase revenues. Investment spending will remain subdued; we expect it to grow by 4.2% this year after just 1.5% in 2012.

1999

2002

2005

2008

2011

2014

2017

Source: Oxford Economics / CEIC

India: Government budget balance and debt

% of GDP 2 0 -2 50 -4 40 -6 -8 -10 1996 1999 2002 2005 2008 2011 2014 2017
Source: Oxford Economics / CEIC

Government debt (RHS)

% of GDP 70

60

and more reforms needed

The government has taken some tentative steps towards improving the economic environment, with reforms to the retail, airline and financial sectors announced in September 2012. It also announced in April that it would push for further reforms, including the easing or abolition of limits on FDI in various sectors. Although the 2013/14 budget did not include necessary infrastructure investment or improve incentives for firms, the government at least took steps to control the budget deficit needed to limit the risk of crowding out funding for private investment. The governments moves are welcome, but much more needs to be done. Widespread power cuts last August highlighted problems in the power sector, which can only be resolved by major investment, while the overly bureaucratic civil service and political influence of interest groups also need to be tackled. In our view, the reforms are unlikely to be implemented in full and we do not expect Indias economy to achieve the governments 8% pa growth target in the medium term. Our baseline forecast assumes that growth will average 7.4% pa between 2015 and 2020.

Central government balance (LHS) F'cast

30

20

India: GDP and industrial production

% year 21 18 15 12 9 6 3 0 -3 -6 -9 1996 1999 2002 2005 2008 2011 2014 2017 GDP Industrial production

Forecast

Source: Oxford Economics / CEIC

Country Economic Forecast: 28 June 2013

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India

Key Indicators: India

Percentage changes on a year earlier unless otherwise stated
Industrial production Bank Credit CPI Industrial workers 10.1 10.1 9.9 10.1 9.4 9.4 9.8 11.4 11.5 12.1 11.2 10.2 CPI Combined rural & urban 10.4 9.9 9.9 10.0 9.7 9.8 9.9 10.6 10.8 10.9 10.4 9.4 9.3 PPI Exports (US$) Imports (US$) Trade balance $ bn -17.0 -10.3 -15.5 -15.6 -18.1 -21.0 -19.3 -17.7 -20.0 -14.9 -10.3 -17.8 -20.1

May Jun Jul Aug Sep Oct Nov Dec 2013 Jan Feb Mar Apr May

2.5 -2.0 -0.1 2.0 -0.7 8.4 -1.0 -0.6 2.5 0.5 3.4 2.3 -

17.8 16.5 17.2 16.9 15.7 16.0 17.0 15.1 16.0 16.3 14.7 14.5 14.1

7.5 7.6 7.5 8.0 8.1 7.3 7.2 7.3 7.3 7.3 5.7 4.9 4.7

-7.5 -5.5 -14.8 -9.7 -10.8 -1.6 -4.2 -1.9 0.8 4.2 7.0 1.7 -1.1

-7.8 -13.5 -7.6 -5.1 5.1 7.4 6.4 6.3 6.1 2.6 -2.9 11.0 7.0

Financial Indicators: India

Percentage changes on a year earlier unless otherwise stated
Repo rate % 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 7.75 7.75 7.50 7.50 7.25 Money Supply M3 % p.a 13.8 15.8 14.0 14.1 13.6 13.3 13.6 11.2 12.9 12.1 13.3 12.4 13.2 Exchange rate Rup/ avg. 69.7 70.3 68.3 68.9 70.1 68.8 70.4 71.7 72.1 71.9 70.6 70.8 71.4 Exchange Exchange rate rate index Rup/$ avg. Trade based 54.5 78.7 56.0 77.3 55.5 78.3 55.6 77.6 54.6 78.9 53.0 80.7 54.8 78.4 54.6 77.6 54.3 53.8 54.4 54.4 55.0 78.1 79.0 78.8 78.7 78.0 Share price End per. 16219 17430 17236 17430 18763 18505 19340 19427 19895 18862 18836 19504 19760 Reserves $bn 254.4 257.0 256.4 257.6 260.0 260.5 260.0 262.0 261.7 258.2 259.7 264.0 258.5 Reserves cover months 6.1 7.3 6.8 6.8 6.2 5.9 6.3 6.2 5.7 6.3 6.3 6.3 5.8

May Jun Jul Aug Sep Oct Nov Dec 2013 Jan Feb Mar Apr May

Country Economic Forecast: 28 June 2013

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India

India: Industrial production

% year 20 3 month moving average 15

India: Stockmarket
000s 24 21 18 Bombay SE

10 5 0

15 12 9 6

-5 -10 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: India CSO

3 0 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

Source: Bombay Stock Exchange

India: Exchange rate

Rupee/US$ 36 40 44

India: Interest rates & WPI inflation

% 10 Repo rate 8 6 4

48 2 52 56 60 2000 0 -2 WPI non-food manufacturing products inflation

2002

2004

2006

2008

2010

2012

-4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Oxford Economics

Source: Reserve Bank of India

India: Merchandise exports and imports

% year 70 60 50 40 30 20 10 0 -10 -20 -30 Exports (US$) Imports (US$)

India: FDI inflows & the current account

US$bn (4 quarter running total) 100 Current account deficit 80 60 40 20 0 -20 2001 Foreign direct investment in India

3 month moving average -40 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: India Ministry of Commerce & Industry

2003

2005

2007

2009

2011

2013

Source: Reserve Bank of India

Country Economic Forecast: 28 June 2013

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India
INDIA TABLE 1 SUMMARY ITEMS Annual Percentage Changes, Unless Otherwise Specified
TOTAL FINAL EXPENDITURE (TFE) TOTAL FIXED INVESTMENT (IF) REAL GDP INDUSTRIAL PRODUCTION PRIVATE SECTOR BANK CREDIT (BPRIV) GOVERNMENT BANK BORROWING (BGOV) WHOLE ECONOMY PRODUCTIVITY (GDP/ET) COMPETITIVENESS (2008=100) (WCR) PRODUCER PRICES CONSUMER PRICES

CONSUMERS EXPENDITURE

(C) YEARS BEGINNING Q1 2011 7.30 2012 5.32 2013 5.89 2014 7.28 2015 7.75 2016 7.69 2017 7.71 2011 I II III IV 2012 I II III IV 2013 I II III IV 2014 I II III IV 2015 I II III IV 2016 I II III IV 2017 I II III IV

(GDP)

(IP)

(PPI)

(CPI)

10.15 5.73 5.22 7.13 8.67 8.76 8.49 10.78 10.63 9.33 9.86 9.27 5.23 4.27 4.10 3.03 5.71 5.87 6.40 6.61 6.81 7.27 7.79 8.25 8.70 8.89 8.85 8.78 8.82 8.78 8.65 8.53 8.55 8.49 8.39

6.25 1.50 4.21 6.00 8.02 8.04 7.91 9.90 13.94 3.80 -1.70 2.62 -2.23 1.12 4.54 3.43 3.80 5.41 4.25 4.88 5.58 6.40 7.16 7.72 8.04 8.17 8.14 8.11 8.07 8.01 7.98 7.93 7.91 7.91 7.91

7.47 5.07 5.14 6.41 7.51 7.59 7.43 9.94 7.49 6.51 5.97 5.07 5.35 5.19 4.71 4.78 4.90 5.23 5.63 5.96 6.22 6.53 6.93 7.29 7.52 7.62 7.63 7.63 7.60 7.59 7.54 7.49 7.45 7.40 7.37

4.80 0.72 3.35 6.92 8.21 8.57 8.14 7.92 6.99 3.18 1.18 0.63 -0.28 0.41 2.09 1.80 2.42 4.00 5.25 5.97 6.68 7.40 7.64 7.89 8.13 8.37 8.45 8.57 8.63 8.65 8.42 8.31 8.27 8.04 7.95

21.84 14.04 9.15 14.31 14.14 13.42 12.06 20.68 21.99 22.45 22.13 24.88 24.15 4.34 4.77 3.67 1.29 16.59 16.17 15.47 13.65 13.96 14.19 14.30 14.24 14.13 13.91 13.73 13.52 13.32 13.12 12.26 12.13 12.00 11.87

13.25 14.93 11.03 11.20 9.70 8.44 7.28 8.44 13.29 14.17 16.87 15.68 16.67 15.09 12.46 11.25 10.61 10.81 11.47 12.21 11.54 10.72 10.45 10.04 9.93 9.59 9.29 8.88 8.73 8.24 7.96 7.57 7.45 7.16 6.95

6.77 3.98 3.63 4.65 5.64 5.62 5.33 9.39 6.84 5.77 5.13 4.13 4.31 4.04 3.46 3.43 3.44 3.67 3.95 4.24 4.47 4.75 5.12 5.46 5.66 5.74 5.72 5.71 5.65 5.61 5.52 5.43 5.36 5.29 5.25

101.22 90.12 87.30 86.48 82.88 78.48 75.08 103.26 104.25 103.00 94.36 95.25 89.21 87.79 88.23 89.19 88.13 85.80 86.07 86.78 87.24 86.59 85.31 84.58 83.75 82.50 80.69 79.98 79.23 78.12 76.59 76.25 75.71 74.84 73.53

9.47 7.55 5.20 4.69 4.53 4.18 4.01 9.57 9.61 9.72 9.01 7.50 7.54 7.87 7.29 6.85 5.06 4.40 4.58 4.65 4.65 4.74 4.70 4.66 4.58 4.49 4.39 4.29 4.19 4.13 4.10 4.06 4.02 3.99 3.98

8.86 9.31 9.46 7.08 6.09 5.10 4.24 8.98 8.92 9.16 8.39 7.17 10.14 9.76 10.10 11.71 10.16 8.50 7.69 7.45 7.21 6.96 6.72 6.47 6.22 5.97 5.72 5.48 5.23 4.98 4.73 4.48 4.32 4.16 4.00

6.95 6.60 6.34 9.16 9.67 4.29 3.54 4.16 3.81 6.64 6.97 6.09 6.65 7.20 7.53 7.69 7.76 7.75 7.73 7.76 7.73 7.69 7.69 7.66 7.69 7.70 7.73 7.73

COPYRIGHT (C) , OXFORD ECONOMICS

INDIA
TRADE BALANCE ($ BN) (BVI$) CURRENT ACCOUNT ($ BN) (BCU$) CURRENT ACCOUNT (% OF GDP) (BCUR%)

TABLE 2 SUMMARY ITEMS

GOVERNMENT FINANCIAL BALANCE (RUPEES BN) (GB) GOVERNMENT FINANCIAL BALANCE (% OF GDP) (GB*100 /GDP!) SHORT-TERM INTEREST RATE (RSH) SPREAD OVER US SHORT-TERM RATE (RSH RSH US) REAL SHORT-TERM INTEREST RATE (Note 1) EQUILIBRIUM EXCHANGE RATE PER US DOLLAR (RXEQUIL) EXCHANGE RATE PER US DOLLAR (RXD)

YEARS BEGINNING Q1 2011 -168.1 2012 -202.0 2013 -217.9 2014 -241.3 2015 -268.0 2016 -295.9 2017 -321.0

-62.8 -93.4 -95.4 -99.2 -103.7 -107.6 -107.2

-3.4 -5.1 -4.8 -4.5 -4.3 -4.1 -3.8

-5833.5 -5399.6 -5577.1 -5949.6 -5574.2 -5173.8 -4841.1

-6.7 -5.5 -5.0 -4.7 -3.9 -3.2 -2.7 -9.2 -7.9 -5.7 -4.3 -5.4 -8.2 -6.3 -2.6 -3.1 -7.9 -6.2 -3.3 -4.4 -7.2 -5.1 -2.4 -3.2 -6.6 -4.2 -1.8 -2.4 -6.0 -3.2 -1.3 -1.8 -5.6 -2.6 -0.9

9.5 9.5 8.6 7.7 7.7 7.8 7.7 9.6 9.4 9.4 9.6 10.3 9.8 9.1 8.7 9.1 8.5 8.4 8.2 7.9 7.6 7.6 7.5 7.6 7.7 7.8 7.9 7.8 7.8 7.7 7.7 7.7 7.7 7.7 7.6

9.2 9.0 8.3 7.3 7.4 7.0 5.9 9.3 9.2 9.1 9.1 9.8 9.3 8.7 8.4 8.9 8.2 8.1 7.9 7.6 7.3 7.3 7.2 7.3 7.4 7.4 7.4 7.2 7.1 6.9 6.8 6.5 6.1 5.7 5.2

0.6 0.2 -0.9 0.6 1.6 2.7 3.4 0.6 0.5 0.2 1.2 3.1 -0.4 -0.7 -1.4 -2.6 -1.7 -0.1 0.5 0.5 0.4 0.6 0.8 1.1 1.5 1.8 2.1 2.3 2.5 2.7 3.0 3.2 3.4 3.5 3.6

51.0 54.5 58.8 62.8 65.9 68.4 70.8 49.9 50.6 51.4 52.2 53.1 54.0 54.9 56.0 57.1 58.2 59.3 60.4 61.4 62.4 63.3 64.1 64.8 65.5 66.2 66.8 67.5 68.2 68.8 69.4 70.0 70.6 71.1 71.5

46.7 53.5 56.2 57.5 59.9 62.7 65.6 45.3 44.7 45.8 51.0 50.3 54.2 55.2 54.1 54.2 55.7 57.6 57.3 57.1 57.2 57.7 58.1 58.8 59.5 60.2 60.9 61.7 62.4 63.1 63.8 64.5 65.2 66.0 66.7

2011 I -30.0 -6.3 -1.3 -2023.4 II -44.9 -17.4 -3.8 -1626.5 III -44.5 -18.9 -4.2 -1181.6 IV -48.6 -20.2 -4.4 -1002.0 2012 I -51.6 -21.7 -4.4 -1352.6 II -42.4 -16.4 -3.8 -1904.6 III -48.3 -22.6 -5.4 -1464.4 IV -59.6 -32.6 -6.7 -678.0 2013 I -51.2 -19.1 -3.8 -851.9 II -53.6 -24.9 -5.2 -2113.1 III -49.5 -19.9 -4.3 -1628.9 IV -63.6 -31.3 -6.0 -983.2 2014 I -55.0 -17.7 -3.2 -1371.9 II -59.0 -25.6 -4.8 -2202.3 III -55.5 -21.2 -4.1 -1540.0 IV -71.8 -34.7 -5.9 -835.5 2015 I -60.9 -17.6 -2.9 -1149.6 II -65.6 -27.3 -4.7 -2279.6 III -61.6 -22.3 -3.9 -1451.9 IV -79.9 -36.5 -5.7 -693.1 2016 I -67.5 -17.7 -2.7 -994.1 II -72.8 -29.2 -4.6 -2381.7 III -67.7 -22.8 -3.7 -1246.8 IV -87.9 -38.0 -5.5 -551.2 2017 I -73.3 -16.6 -2.3 -800.2 II -79.1 -29.7 -4.4 -2476.6 III -73.1 -22.3 -3.4 -1128.2 IV -95.5 -38.6 -5.2 -436.2 Note 1 : REAL INTEREST RATE = Nominal interest rate (RSH) - % change in CPI COPYRIGHT (C) , OXFORD ECONOMICS

Country Economic Forecast: 28 June 2013

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India

Potential output growth 6.9%pa

Potential output is projected to rise by 6.9%pa over the next 10 years, a significantly lower rate than in the previous decade. GDP is set to expand by 5.1% in 2013, having grown by 5.1% in 2012 and to be significantly below potential growth at 6.4% in 2014. As a result, the small output gap of 0.0% in 2012 will expand in 2013 to -1.9% and increase in 2014 to 2.9%, and it is not forecast to close fully until 2021. The main contribution to growth in potential output over the coming decade comes from expanding total factor productivity. The 1.2%pt contribution from expanding labour usage reflects the 1.5%pa rise in the working population over the next ten years and a decrease in the participation rate which combine to boost the labour supply by 1.8%pa. For the capital stock's contribution of 2.7%pt, the main factor is significantly lower investment growth (at 7.1%pa) than in the previous decade. Finally, total factor productivity growth's significantly lower contribution of 3.0%pt reflects the worse contribution to potential growth from factors influencing production other than labour and capital over the coming decade.
India: Actual & potential output
Rupee billion, 2004/2005 prices 27000 24000 21000 18000 15000 12000 9000 6000 3000 0 1990 1994 1998 2002 Actual 2006 2010 2014 2018 Potential Forecast

Source: Oxford Economics

Potential GDP and Its Components Average Percentage Growth

2003-2012 Potential GDP* Employment at NAIRU Capital Stock Total Factor Productivity 7.7 1.1 9.1 3.8 2013-2022 6.9 1.8 7.8 3.0

*ln(Potential GDP)=0.65*ln(Employment at NAIRU) +0.35*ln(Capital Stock)+ln(Total Factor Productivity)

Long-Term Forecast for India

(Average annual percentage change unless otherwise stated)

2003-2007
GDP Consumption Investment Government Consumption Exports of Goods and Services Imports of Goods and Services Unemployment (%) Consumer Prices Current Balance (% of GDP) Exchange Rate (vs US$) General Government Balance (% of GDP) Short-term Interest Rates (%) Working Population Labour Supply Participation Ratio Labour Productivity 8.6 7.2 15.4 4.3 17.6 19.0 12.8 4.8 -0.3 44.5 -3.8 6.6 2.1 1.5 -0.3 6.8

2008-2012
7.4 7.3 6.6 9.7 9.7 13.7 12.5 9.9 -3.2 47.6 -5.6 8.2 2.0 0.6 -1.5 6.7

2013-2017
6.8 7.3 6.8 6.0 10.0 10.2 12.5 6.4 -4.3 60.4 -3.9 7.9 1.6 1.8 -0.1 5.0

2018-2022
7.2 7.4 7.3 6.8 10.7 9.8 12.5 3.6 -3.3 72.7 -2.5 7.6 1.3 1.8 0.5 5.2

Country Economic Forecast: 28 June 2013

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India

Long-Term Forecast for India

Annual percentage changes unless otherwise specified

2003-2012
GDP Consumption Investment Government Consumption Exports of Goods and Services Imports of Goods and Services Unemployment (%) Consumer Prices Current Balance (% of GDP) Exchange Rate (per $) General Government Balance (% of GDP) Short-term Interest Rates (%) Working Population Labour Supply Participation Ratio (%) Labour productivity Employment Output gap (% of potential GDP) 8.0 7.3 10.9 7.0 13.5 16.3 12.7 7.3 -1.8 46.0 -4.7 7.4 2.0 1.1 67.7 6.7 1.2 -0.2

2009
6.5 6.9 -0.7 9.2 -7.7 -8.3 12.5 10.9 -2.1 48.4 -7.0 5.5 2.0 0.4 66.8 5.9 0.6 0.1

2010
9.7 8.6 17.5 8.1 15.4 18.2 12.5 12.0 -3.2 45.7 -3.8 6.3 2.0 0.4 65.7 9.2 0.4 1.2

2011
7.5 7.3 6.2 7.8 18.3 18.4 12.5 8.9 -3.4 46.7 -6.7 9.5 1.9 0.7 64.7 6.8 0.7 1.6

2012
5.1 5.3 1.5 5.8 6.6 11.7 12.5 9.3 -5.1 53.5 -5.5 9.5 1.9 1.1 63.9 4.0 1.1 0.0

2013
5.1 5.9 4.2 1.9 4.4 6.9 12.5 9.5 -4.8 56.2 -5.0 8.6 1.8 1.5 63.4 3.6 1.5 -1.9

2014
6.4 7.3 6.0 7.2 9.3 9.2 12.5 7.1 -4.5 57.5 -4.7 7.7 1.7 1.7 63.2 4.6 1.7 -2.9

2015
7.5 7.7 8.0 7.1 11.8 11.9 12.5 6.1 -4.3 59.9 -3.9 7.7 1.6 1.8 63.2 5.6 1.8 -2.8

2016
7.6 7.7 8.0 6.9 12.4 11.9 12.5 5.1 -4.2 62.7 -3.2 7.8 1.6 1.9 63.3 5.6 1.9 -2.2

2017
7.4 7.7 7.9 6.9 12.2 11.2 12.5 4.2 -3.9 65.6 -2.7 7.7 1.5 2.0 63.5 5.3 2.0 -1.7

2018
7.3 7.7 7.8 6.9 12.0 10.7 12.5 3.7 -3.6 68.5 -2.5 7.6 1.4 2.0 63.8 5.2 2.0 -1.2

2019
7.3 7.5 7.5 6.8 11.3 10.2 12.5 3.6 -3.4 71.3 -2.4 7.7 1.4 2.0 64.2 5.2 2.0 -0.9

2020
7.3 7.3 7.3 6.8 10.8 9.7 12.5 3.5 -3.3 73.9 -2.4 7.7 1.3 1.8 64.5 5.4 1.8 -0.4

2021
7.1 7.2 7.1 6.7 10.0 9.3 12.5 3.5 -3.2 74.8 -2.5 7.7 1.3 1.8 64.9 5.3 1.8 -0.1

2022 2013-2022
6.9 7.1 6.9 6.6 9.2 9.1 12.5 3.5 -3.1 75.0 -2.5 7.7 1.2 1.6 65.2 5.1 1.6 0.0 7.0 7.3 7.1 6.4 10.3 10.0 12.5 5.0 -3.8 66.5 -3.2 7.8 1.5 1.8 63.9 5.1 1.8 -1.4

Country Economic Forecast: 28 June 2013

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India Background

Having rarely recorded GDP growth of above 7% prior to 2003, the Indian economy chalked up five consecutive years above that figure between 2003-07, with 9%+ growth registered in 2005-07. This not only propelled the country into the economic fast lane alongside China but also meant that it was making an important contribution to the overall increase in world GDP. Moreover, the fact that the period saw a marked upward shift in the investment to GDP ratio, from 23.2% in 2002/03 to 33% in 2007/08, indicates that the sustainable growth rate of the economy is much higher than in the past, probably around 7.5% pa. However, India still has a very long way to go along the development path. According to the IMF, Indias GDP per capita us ing market prices and exchange rates was just US$1,492 in 2012 while on a PPP basis it was US$3,830; the equivalent figures for China were US$6,076 and US$9,162 respectively. Despite the slowdown in the economy in 2008/09 and high inflation which has hit the vast numbers of urban and rural poor very hard the Congress-led coalition (the United Progressive Alliance or UPA) won the 2009 general election by a surprisingly decisive margin. Although the UPA did not win enough seats in the lower house of parliament to form an immediate outright majority, the fact that Congress won a third more seats than at the 2004 election resulted in the UPA quickly attracting enough independents and smaller parties to their side to form a governing majority. The 2009 election marked a partial reversal to the previous trend in Indian politics of increasing fragmentation and rising importance of regional parties. Despite this, the very broad nature of the coalition has meant that progress on structural reform has remained slow. In addition, powerful state governments can still slow the implementation of national government changes as demonstrated by the current delay to the introduction of the national goods & services tax. And since late 2010 national politics have been dominated by allegations of massive corruption related to the 2008 sale of 2G spectrum (the contracts for which were all cancelled in early 2012). With two-thirds of the population living in the countryside and more than half the labour force working in the sector, agriculture is still a key part of the economy. However, in the eleven years to 2009 it only grew by 2.5% pa in real terms so its share in the overall economy has fallen significantly, from 25.7% in 1998 to 17% in 2009. By contrast, the most dynamic sector has been the services sector, recording 8.7% annual growth between 1998 and 2009, with major expansions in distribution, transport, communication, finance and business services. Construction has also boomed, growing 9% pa over the same period. Industry has performed more modestly, with manufacturing recording 7.3% pa growth and utilities a disappointingly slow 5.6% pa. Indeed, the last figure highlights one major concern about the countrys future development the desperate need to improve the economys basic infrastructure. Related to this is the difficulty that businesses find if they want to build new industrial plant on what was previously farmland, as typified by the abandonment of the planned Tata car factory in West Bengal in 2008. With the boom in the services sector helping to create a relatively affluent middle class, said to be 300m-strong, the links between rural incomes and industrial activity have weakened. Rising incomes and increased access to credit have led to much higher spending on consumer durables such as cars, phones and other electronic items. However, the higher level of inflation since 2005 has particularly constrained the purchasing power of the urban and rural poor. And if the economy is to sustain a high level of growth for several decades, it will need to ensure that an ever-wider number of people are raised above virtual subsistence living, by increasing both output and productivity growth in agriculture, raising educational standards and making cities more attractive to migrants. The 2000s saw a significant integration of the economy with the rest of the world. Exports of services (largely software and business outsourcing) accounted for 7.6% of GDP in 2010 compared to 2.2% in 1997, while the equivalent ratio for merchandise exports increased from 8.5% to 13.8%. Allied to this has been a sharp increase in foreign investment in India, either in the form of FDI (despite the many bureaucratic hurdles) or in portfolio flows. The rapid growth in the economy between 2003-07 enabled a sharp fall in the central governments budget deficit, from 5.9% of GDP in 2002/03 to 2.7% in 2007/08. However, relatively little was done during this time to widen the tax base. The cyclical nature of the improvement in the budget over these years was shown up by the speed of the fiscal deterioration in 2008H2 as the economy slowed sharply. In the February 2010 budget, the finance minister set out a fiscal consolidation plan to cut the centres deficit from 6.7% in 2009/10 to 4.1% in 2012/13; however, the this target was missed with the deficit in 2012/13 posting a reading of 4.8% of GDP.

Country Economic Forecast: 28 June 2013

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India
Key Facts
Politics
Chief of state: President Pranab MUKHERJEE Head of government: Prime Minister Manmohan SINGH Political system: Federal republic Date of next presidential election: July 2017 Date of next legislative election: 2014 Currency: Indian rupee (INR)

Long-term economic & social development

1980 1990 GDP per capita (US$) 271 374 Inflation (%) 11.4 9.0 Population (mn) 700 874 Urban population (% of total) 23.1 25.5 Life expectancy (years) 55.4 58.4 Source : Oxford Economics & World Bank 2000 450 3.9 1045 27.7 61.6 2012* 1489 9.3 1249 31.3 65.5

Structure of GDP by output

Agriculture Industry Services Source : World Bank 2011 17.2% 26.4% 56.4%

* 2012 or latest available year Source : CIA Factbook Location : Southern Asia, bordering the Arabian Sea and the Bay of Bengal, between Burma and Pakistan (CIA Factbook)

Long-term sovereign credit ratings & outlook

Fitch Moody's S&P Foreign currency BBB- (Stable) Baa3 (Stable) BBB- (Negative) Local currency BBB- (Stable) Baa3 (Stable) BBB- (Negative)

Corruption perceptions index 2012

Developed economies (average) Emerging economies (average) India Emerging Asia Score 74.8 38.0 36.0 35.4

Structural economic indicators

Current account (US$ billion) Trade balance (US$ billion) FDI (US$ billion) Debt service (US$ billion) Debt service (% of exports) External debt (% of GDP) Oil production (000 bpd) Oil consumption (000 bpd) 1990 -7.0 -7.7 0.2 8.1 34.9 26.2 660 1168 1995 -5.6 -10.7 2.0 13.6 34.5 26.0 703 1575 2000 -4.6 -16.6 3.1 11.0 17.6 21.3 646 2127 2012* -93.4 -202.0 16.7 45.8 10.4 19.4 777 3418

Source: Transparency International Scoring system 100 = highly clean, 0 = highly corrupt

Composition of goods & services exports, 2011

Fuels and mining products 16.3%

Manufactures 42.6%

Source : Oxford Economics / World Bank / EIA

Agricultural products 7.8% Other commercial services 23.0%

Other goods exports 2.3% Transportation 4.0% Travel 4.0%

Destination of goods' exports (2011)

European Union (27) United Arab Emirates United States China Singapore Source : WTO 18.1% 12.4% 10.9% 5.5% 5.2% Source : WTO

Country Economic Forecast: 28 June 2013

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