India: Briefing sheet

Content Type
Country Data and Maps
Economist Intelligence Unit
No abstract is available.
Politics, Summary, Outlook, Briefing sheet
Political Geography

Political and economic outlook

  • India is a large emerging market and the fifth-largest economy in the world. A majority of the economy is made up of services-oriented industries, with expertise in IT services. Recent reforms to labour laws will support competitiveness in the manufacturing sector.
  • The ruling Bharatiya Janata Party (BJP)-led coalition is expected to serve out its full term, which expires in 2024. Political stability will be supported strongly by the ruling coalition's large majority in the lower legislative house and a weak political opposition.
  • The government will prioritise large-scale liberalisation and privatisation to support economic growth. However, ongoing farmer protests are expected to delay the implement-ation of agricultural reforms and also slow the pace of future reforms.
  • Economic activity will return to pre-pandemic levels in fiscal year 2021/22 (April-March) after rebounding sharply, following a contraction in 2020/21. Nevertheless, real GDP will remain 6.7% smaller in 2021/22 than The Economist Intelligence Unit's pre-pandemic forecast.
  • We expect the rupee to maintain a slight appreciatory trend against the US dollar over the next couple of months owing to an undervalued exchange rate. The rupee will return to a broad depreciatory trend from mid-2021.
  • The pandemic has not led to a sharp rise in India's external debt as a proportion of GDP. The country's low external debt ratio, compared with those of other emerging-market economies, and large foreign- exchange reserves will support its repayment capacity.
  • India and China have started to disengage militarily at their border, but a complete de-escalation will be a long-drawn-out process, with the risk of a flare-up remaining high.
Key indicators
  2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth (%)c -7.0 13.0 4.5 5.5 5.3 5.8
Consumer price inflation (av; %) 6.6d 5.0 4.7 4.3 3.9 4.1
Government balance (% of GDP)c -9.3 -6.7 -5.7 -5.4 -4.9 -4.5
Current-account balance (% of GDP)e 1.2 -0.8 -1.2 -1.0 -0.9 -0.8
Money market rate (av; %) 4.8d 3.8 4.3 4.9 5.4 5.5
Unemployment rate (%) 10.9 8.0 7.8 7.3 7.0 6.5
Exchange rate Rs:US$ (av) 74.10d 73.80 76.35 78.88 80.63 83.00
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). d Actual. e Based on average exchange rate in fiscal year beginning April 1st.

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Key changes since January 22nd

  • The government's budget for 2021/22 projected higher expenditure than we had expected. We have therefore widened our forecast for the fiscal deficit for that year to 6.7% of nominal GDP, from 5.7% previously.
  • We previously expected the banking sector to face severe strains. However, the government's provisions for recapitalising public-sector banks and the setting up of a "bad bank" will help to alleviate these strains significantly.
  • Our improved expectation of the banking sector, coupled with the expansionary budget, has led us to revise up significantly our economic growth forecast for 2021/22 to 13%, from 6.9% previously.
  • We have revised up our forecast for inflation owing to stronger private consumption growth and a change in our expectation of global crude oil prices (dated Brent Blend). We now expect consumer price inflation to stand at 5% in 2021, from 4.6% previously.
  • We also expect higher merchandise imports because of stronger economic growth; as a result, we now expect the current-account deficit to be wider, at 0.8% of GDP, from 0.4% previously.

The month ahead

  • March 12th-Consumer price inflation (February): We expect that consumer price inflation remained broadly stable in February, from 4.1% in January. This is as we expect the deceleration in food price inflation to halt.
  • March (TBC)-Review of the monetary policy target: The government and the Reserve Bank of India (the central bank) will review the monetary policy committee's inflation target for the next five years. No significant changes to the 2-6% inflation target band are expected.

Major risks to our forecast

Scenarios, Q4 2020 Probability Impact Intensity
The economic recovery stalls in 2021 High Very high 20
The BJP's strong legislative majority serves to undermine political checks and balances High Moderate 12
The banking sector faces a systemic crisis Moderate High 12
The government tightens restrictions on foreign direct investment (FDI) Moderate High 12
A major conflict breaks out between India and Pakistan Low Very high 10
Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

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