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India Country Risk Report Q2 2020

Published by Fitch Solutions, Inc. Product code 203079
Published annual subscription Content info 79 Pages
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India Country Risk Report Q2 2020
Published: annual subscription Content info: 79 Pages
Description

India's real GDP growth slowed further to 4.5% y-o-y in Q2 of FY2019/20 (April-March), from 5.0% y-o-y in the first quarter, mainly owing to a collapse in investment

growth, which outweighed soft recoveries in private and government consumption. In light of a softer than expected first half, in addition to a weak growth outlook

over H2 FY2019/20, we have revised our FY2019/20 full year growth forecast to 5.1%, down from 6.4% previously. We expect continued economic weakness to

be owing to weak private consumption growth as well as weak gross fixed capital formation growth. That said, we expect robust government consumption growth

and an improving net export contribution (owing to a sharper fall in imports growth than exports) to prop up growth over the second half of the fiscal year.

The RBI held its benchmark repurchase (repo) and reverse repo during its December 5 monetary policy meeting at 5.15% and 4.90%, respectively. We continue to

forecast the RBI's repo and reverse repo rate to fall by 40bps to 4.75% and 4.50%, respectively, by the end of FY2020/21 (April-March), with risks to our policy rate

forecasts weighted to the downside. Rising inflationary pressures would constrain the central bank's ability to ease further to stimulate growth over the near term,

given its mandate to keep inflation below 6.0%. However, we believe that the RBI will eventually prioritise growth in this cycle, given the transitory nature of high

food inflation, and ease further in 2020 following more clarity around fiscal support from the FY2020/21 (April-March) Union Budget due in February 2020.

We have revised our forecast for India's central fiscal deficit to come in at 3.6% of GDP in FY2019/20 (April-March), from 3.4% previously, reflecting our view for a

larger slippage versus the government's 3.3% target. We believe that this will mainly be due to weak revenue collection as a result of sluggish economic growth

and the government's sweeping corporate tax cut in September amid no intention to reduce fiscal spending.

We continue to expect the Indian rupee to remain on a long-term weakening trajectory against the US dollar, and average INR73.00/USD in 2020 and INR75.00/

USD in 2021 (revised from INR74.00/USD and INR76.00/USD respectively). Over the short term, a narrowing nominal interest differential with the US and worsening

terms of trade will weigh on the rupee. The central bank's focus on growth will likely also see it favour a weaker rupee to support export competitiveness. Over the

longer term, we expect the rupee's overvaluation and structurally higher inflation relative to the US to exert downside pressure on the currency.

Table of Contents
Product Code: CFIN_20200401

Table of Contents

Executive Summary

  • Core Views
  • Key Risks
  • Country Risk Summary
  • Economic Risk Index
  • Political Risk Index
  • SWOT
  • Economic - SWOT Analysis
  • Political - SWOT Analysis
  • Economic Outlook
  • Economic Growth Outlook
  • Sharp Downward Revision To India's Growth Outlook
  • GDP By Expenditure Outlook
    • TABLE: GDP GROWTH FORECASTS
    • TABLE: PRIVATE CONSUMPTION FORECASTS
    • TABLE: GOVERNMENT CONSUMPTION FORECASTS
    • TABLE: FIXED INVESTMENT FORECASTS
    • TABLE: NET EXPORTS FORECASTS
  • Outlook On External Position
    • TABLE: CURRENT ACCOUNT BALANCE FORECASTS
    • TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
    • TABLE: MAIN EXPORT AND IMPORT PARTNERS
    • TABLE: MAIN EXPORTS AND IMPORTS
  • Monetary Policy
  • India's Monetary Easing Cycle To Continue
  • Monetary Policy Framework
    • TABLE: MONETARY POLICY FORECASTS
  • Fiscal Policy And Public Debt Outlook
  • India To Record A Larger Central Fiscal Deficit Due To Weak Revenue Collection
  • Structural Fiscal Position
    • TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
    • TABLE: FISCAL AND PUBLIC DEBT FORECASTS
  • Currency Forecast
  • Indian Rupee On A Weakening Trajectory
    • TABLE: CURRENCY FORECAST
  • THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
  • The Indian Economy To 2029
  • Will India's Growth Live Up To Expectations?
    • TABLE: LONG-TERM MACROECONOMIC FORECASTS
  • Political Outlook
  • Domestic Politics
  • India's Resistance To RCEP To Have Long-Term Domestic And Foreign Policy Implications
    • TABLE: POLITICAL OVERVIEW
  • Long-Term Political Outlook
  • A Second Chance To Reform The Indian Economy
  • Operational Risk
    • TABLE: OPERATIONAL RISK
  • Conflict Risk
    • TABLE: MAIN ACTIVE TERRORIST GROUPS
    • TABLE: POLITICAL VIOLENCE RISK
    • TABLE: MAJOR INTERSTATE CONFLICT FLASHPOINTS
    • TABLE: MILITARY PROFILE AND DEFENCE AGREEMENTS
    • TABLE: BUSINESS RESPONSE TO CONFLICT RISK
  • Transport Network
    • TABLE: ROAD RISKS
    • TABLE: RAIL RISKS
    • TABLE: PORTS AND INLAND WATERWAY RISKS
    • TABLE: AIR TRANSPORT RISKS
  • Global Macro Outlook
  • Growth Stabilising, With EMs Set To Accelerate In 2020
    • TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
    • TABLE: DEVELOPED MARKETS - REAL GDP GROWTH, % y-o-y
    • TABLE: EMERGING MARKETS - REAL GDP GROWTH, % y-o-y
  • Index Tables
    • TABLE: INDIA - MACROECONOMIC DATA AND FORECASTS
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