EIU India Feb 2018

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Country Report
India
Generated on February 12th 2018

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ISSN 2047-5004
Symbols for tables

"0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable
India 1
India
Summary
2 Briefing sheet
Outlook for 2018-22

5 Political stability
6 Election watch
6 International relations
7 Policy trends
7 Fiscal policy
8 Monetary policy
8 International assumptions
9 Economic growth
9 Inflation
10 Exchange rates
10 External sector
10 Forecast summary
11 Quarterly forecasts
Data and charts

12 Annual data and forecast
13 Quarterly data
14 Monthly data
15 Annual trends charts
16 Quarterly trends charts
17 Monthly trends charts
18 Comparative economic indicators
Summary
18 Basic data
20 Political structure
Recent analysis
Politics
23 Forecast updates
25 Analysis
Economy
27 Forecast updates
Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

India 2
Briefing sheet
Editor: Shreyans Bhaskar
Forecast Closing Date: January 24, 2018
Political and economic outlook

The Economist Intelligence Unit expects the National Democratic
Alliance (NDA) government to retain its dominance over the political
scene. The NDA will secure a second five-year term at the
parliamentary election due in 2019.
The NDA is on track to gain a majority in the Rajya Sabha (the upper
house of parliament) in 2019-20, on the back of strong performances at
state polls. This will enable it to pass legislation without the consent
of the opposition.
The pace of progress in improving the business environment will be
uneven. The NDA administration will focus on enhancing
macroeconomic stability through fiscal and monetary policy reforms.
We forecast that the budget deficit will average the equivalent of 3.1%
of GDP in fiscal years 2018/19-2022/23 (April-March). The government
will expand the tax net gradually and seek to increase tax compliance.
Real GDP growth will average 7.9% a year in 2018/19-2022/23. Robust
private consumption growth and a pick-up in gross fixed investment
as banks' balance sheets improve will underpin the acceleration in the
rate of economic expansion.
The Reserve Bank of India (RBI, the central bank) will continue to
prioritise inflation targeting in its policy framework. As a result,
consumer price inflation will remain within the RBI's target range of 2-
6%.

India 3
Key indicators
2017a 2018b 2019b 2020b 2021b 2022b
Real GDP growth (%)c 6.7 7.6 8.0 7.5 8.0 8.3
Consumer price inflation (av; %) 3.3d 5.1 5.3 4.7 4.8 5.1
Government balance (% of GDP)c -3.3 -3.4 -3.2 -3.1 -3.0 -3.0
Current-account balance (% of GDP) -1.8 -2.2 -2.1 -1.8 -2.3 -2.6
Money market rate (av; %) 6.5d 6.8 6.9 6.5 6.9 7.1
Unemployment rate (%) 8.5 8.7 8.7 8.4 8.3 8.1
Exchange rate Rs:US$ (av) 65.12d 66.77 73.01 70.78 72.08 73.40
aEconomist Intelligence Unit estimates. Economist Intelligence Unit forecasts. c Fiscal years (beginning
b
April 1st of year indicated). d Actual.
Key changes since December 19th

We have revised up our forecasts for consumer price inflation, as we now anticipate oil prices
to trend higher than previously expected. We now forecast consumer prices to rise by 5% a
year on average in 2018-22, compared with 4.5% previously.
We have revised up our industrial production growth forecast for 2018, from 4% to 4.9%, after
strong recent data suggesting a faster than expected recovery from the disruptions caused by
demonetisation and the goods and services tax (GST) reform.
We now expect the RBI to tighten monetary policy in 2018 rather than keep interest rates on
hold, in order to keep a check on higher price pressures. We expect two 25-basis-point
increases in policy interest rates in the first and third quarters of 2018.
The month ahead

February 1st—Budget is presented to parliament: The budget will outline the government's
economic agenda for 2018/19.
February 7th—RBI bimonthly monetary policy review: The meeting, which will come shortly
after the budget, will provide signals on how the RBI will take its current policy outlook forward
into 2018/19.
February 12th—Index of industrial production (December): Recent industrial pro duction data
have signalled a swift recovery from the disruptive impact of tax reforms carried out in July
2017. The data will provide evidence on whether that trend is continuing.
India 4
February 12th—Consumer price index (January): Inflationary pressures rose throughout 2017

owing to a recovery in global commodity prices. Evidence of rising prices would put pressure
on the RBI to undertake a tightening of monetary policy.
TBC—Prime minister's visit to the Middle East: The prime minister, Narendra Modi, will
embark on a visit to Oman, the UAE and Palestine in February. The visit to Palestine will
indicate how India intends to balance its historical support for Palestine with its growing
closeness to Israel.
Major risks to our forecast

Scenarios, Q4 2017 Probability Impact Intensity
Conflict breaks out between India and Pakistan Very high Very high 25
Progress in improving port and road infrastructure slows High High 16
Street protests result in a localised breakdown of basic law and order High High 16
Support from regional parties accelerates the government's reform drive High High 16
Investment growth remains sluggish Moderate Very high 15
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.

India 5
Outlook for 2018-22

Political stability
The Economist Intelligence Unit expects the National Democratic Alliance (NDA) coalition to
continue to enjoy political primacy in the country in 2018-22. The NDA has been in office since
2014 and is dominated by the centre-right Bharatiya Janata Party (BJP). The BJP and its allies
control 19 out of India's 29 state governments, including some of the largest states such as Uttar
Pradesh and Maharashtra. The prime minister, Narendra Modi, is proving to be the country's most
dominant political leader in decades, and we expect him to remain in a strong position to pursue
his political and economic agenda after the 2019 elections. Mr Modi has concentrated decision-
making around his own office and key economic and infrastructure ministries, giving more clout to
a small group of policymakers in the executive branch than to other ministries and parliament. We
expect this centralisation of decision-making to stay in place beyond 2019. Although this will help
to mitigate the risk of policy paralysis, it will come at the cost of making change dependent on the
opinion of only a few policymakers.
The NDA's dominance in parliament will increase after early 2020, when we expect the alliance to
take control of the Rajya Sabha (the upper house of parliament). Members of the Rajya Sabha are
elected by members of state assemblies. However, changes in the composition of state assemblies
have an impact on parties' strength in the Rajya Sabha, with a delay, as a third of the upper-house
members are elected every two years on a rotating basis. Once the NDA assumes control of the
Rajya Sabha, it will be able to pass legislation without the consent of opposition parties.
The NDA's dominance notwithstanding, there is an increasing threat to political stability
emanating from the coalition's ultra-right wing affiliates and sister organisations of the BJP, such
as the Bajrang Dal and Rashtriya Swayamsevak Sangh. These groups have become influential in
BJP-run states, and are increasingly setting the cultural agenda both locally and at national level.
Their promotion of social conservatism and calls to re-cast India as a Hindu state will further raise
tensions with minority communities, particularly Muslims. As the BJP continues to expand its
reach to the southern and north-eastern parts of the country, these tensions raise the possibility
of isolated but violent clashes between supporters of the BJP and those who are opposed to its
political ideology.
Financial distress in the agriculture sector could also pose threats to stability, as Indian
agriculture is highly rain-dependent, and weak monsoons could translate into political volatility in
rural areas. In order to contain this instability, the government is likely to offer sops to farmers,
such as raising the minimum guaranteed prices for agriculture products and waiving farmers' bad
debts.
Competition for skilled-employment opportunities will remain fierce as millions of increasingly
well-educated Indians enter the workforce each year. As a result, further protests by social groups
demanding government support (such as through the system of reservations) will pose a risk to
political stability. This risk will be amplified by rival parties' attempts to jockey for electoral
support by promising patronage or financial benefits to certain groups. However, such moves
also run the risk of aggravating communities that are not covered by these benefits.
There are also notable security threats that will remain throughout the forecast period.
Insurgencies will persist in Indian-administered Kashmir, in the north-east and in parts of central
India, especially the states of Jharkhand and Chattisgarh, which are blighted by left-wing
extremism. We nonetheless expect the security forces to maintain basic law and order in the
affected areas in the next five years. Conditions in the parts of Kashmir administered by India will
remain tense, and isolated terror attacks in major urban areas cannot be ruled out.

India 6
Election watch
We expect the NDA to secure a second term at the next parliamentary election, in mid-2019. We
also expect the BJP to retain its position as the single-largest party in the Lok Sabha (the lower
house), largely driven by Mr Modi's popularity.
The main opposition party, the Indian National Congress, is unable to match the BJP's electoral
appeal. Congress gained a reputation for corruption during its previous tenure in office (2004-14),
as a result of which the party has lost credibility among voters. Furthermore, its electoral agenda
remains unappealing to voters, who have shown greater inclination to support Mr Modi's
government. The opposition parties are unlikely to coalesce into a common alliance, mainly
because of differences in ideology. Divided, they are unlikely to mount any serious challenge to
the NDA. Congress will criticise the NDA administration over issues such as rising inequality and
social tensions, as well as unemployment. However, this strategy is unlikely to yield significant
political dividends owing to Mr Modi's continued popularity.
State elections will be held throughout the forecast period. We expect the BJP (and the NDA as a
whole) to perform strongly across a majority of states, thereby helping to strengthen its position
in the upper house.
International relations
Mr Modi will continue to drive an assertive foreign policy strategy in 2018-22. His focus will be to
deepen India's relationship with Western nations and Japan. India will look to counteract China's
growing influence in South Asia through closer ties with the US and its allies in the region. India
will also ramp up investment into Nepal and Sri Lanka to contain China's dominance there.
However, India will be unable to match China's funding capabilities, and so its influence in the
region will nonetheless be eroded. Further military stand-offs with China on the Sino-Indian
border are likely in 2018-22, but we believe that conflict will be avoided.
We do not expect India's relationship with Pakistan to improve in 2018-22 owing to lingering
territorial disputes, particularly over the Kashmir region. The risk of minor crossborder military
incidents will persist, but we assume that no overt outbreak of hostilities will occur in the forecast
period.
Deepening economic engagement will provide successive governments with a foundation to
strengthen diplomatic relations in parts of the Gulf region and Africa. Indeed, Mr Modi has
established a proactive foreign policy agenda in the Gulf region, which will see India establish
closer ties with Israel, members of the Gulf Co-operation Council and Iran.

India 7
Policy trends
We expect the government to continue to make efforts to improve the ease of doing business by
removing restrictions on foreign direct investment, as well as through simplifying tax and other
government procedures in order to cut red tape. However, more drastic reforms to land and labour
laws remain unlikely, owing to strong resistance from trade unions, civil society and opposition
political groups. The government will focus on improving the physical infra structure, particularly
road transport, shipping and electricity. Efforts will also be made to improve electorally crucial
sectors such as healthcare and urban governance. Nevertheless, implementation shortcomings
and the limited effect iveness of the government will result in only sluggish progress in these
sectors.
The government will continue to make efforts to curtail the fiscal deficit, but given political
opposition there will be little or no privatisation of state-run enterprises. In order to enhance its
efficiency, the government will aim for increased digitisation. Reforms aimed at linking subsidy
payments to personal bank accounts via India's unique-identity platform, Aadhar, will cut
leakages in subsidy payments.
Policymaking will be swifter at state level as the central government encourages "competitive
federalism", but these measures will have a limited impact. Overall, politically contentious reforms
will continue to face opposition from opposition parties and civil society. The NDA will need to
maintain a careful balance between implementing potentially unpopular reforms and ensuring that
these do not dent its support base. We anticipate that, when these two pressures are in conflict,
the government will prioritise political considerations over its reform agenda in 2018-22.
Fiscal policy
Implementation of the GST, concrete steps aimed at improving tax admini stration and greater
formalisation of the economy will provide national and state governments with higher revenue in
the years ahead. The tax authorities will increasingly use "big data" to curb evasion, but India's
tax system will remain fairly complex and prone to corruption over fiscal years 2018/19-2022/23
(April-March).
Efforts to improve infrastructure and boost support for rural areas, increasing demand for a range
of public goods, and the political pressures of state and parliamentary elections will compel the
government to raise expenditure. As a result, the government will record a persistent fiscal deficit,
averaging the equivalent of 3.1% of GDP in 2018/19-2022/23. This will be higher than the
government's target for 2017/18-2020/21, when it has said that it will aim to contain the deficit at
3% of GDP. However, we anticipate that the deficit will remain broadly manageable. In the recent
past the government has generally maintained fiscal prudence. The slight fiscal slippage ahead of
the 2019 elections notwithstanding, we believe that the government will reduce the deficit from the
equivalent of 3.4% of GDP in 2018/19 to 3% in 2022/23.
This improving picture masks large deficits being recorded by several state governments, which
are not included in the national figure. The wide fiscal deficits of some states, such as Punjab, will
pose downside risks to GDP growth by potentially crowding out private investment.

India 8
Monetary policy
The Reserve Bank of India (RBI, the central bank) will continue to make inflation targeting the
cornerstone of its monetary policy framework in the next five years. The RBI will aim to contain
consumer price inflation within the 2 6% range, and close to its optimum target of 4% throughout
the forecast period. A build-up of inflationary pressure in 2018 will require the RBI to tighten its
monetary policy stance incrementally. We expect the central bank to undertake two 25-basis-point
increases in the repurchase (repo) rate, its benchmark policy rate, over the course of the year. The
RBI will maintain the repo rate at 6.5% throughout 2019 before easing monetary policy in 2020 to
offset the disinflationary impact of a downturn in the US economy. The easing cycle will be
completed by 2021 and the RBI will revert to a neutral policy stance in 2021 22.
The RBI will also be responsible for a number of regulatory changes in the financial sector. We
anticipate that its efforts to improve the efficiency of capital allocation in the financial system will
bear fruit, and that privately owned banks will expand their market share. We expect the RBI to
stick to its target of rolling out Basel III norms in the banking sector by March 2019.
International assumptions
2017 2018 2019 2020 2021 2022
Economic growth (%)
US GDP 2.2 2.3 2.4 0.9 2.1 2.0
OECD GDP 2.3 2.1 2.1 1.3 2.0 1.9
World GDP 3.0 2.9 2.9 2.4 2.8 2.8
World trade 4.6 4.3 4.0 2.8 3.8 3.7
Inflation indicators (% unless otherwise indicated)
US CPI 2.1 2.2 2.3 1.3 1.8 1.9
OECD CPI 2.1 2.1 2.1 1.7 1.9 1.9
Manufactures (measured in US$) 3.5 4.2 4.0 3.1 3.8 3.3
Oil (Brent; US$/b) 54.4 63.0 60.0 57.8 60.6 63.3
Non-oil commodities (measured in US$) 7.6 2.0 1.3 -3.1 2.1 1.4
Financial variables
US$ 3-month commercial paper rate (av; %) 1.1 1.7 2.5 2.3 1.5 1.8
¥ 3month money market rate (av; %) 0.1 0.0 0.0 0.0 0.1 0.1
Exchange rate: ¥:US$ (av) 112.1 111.3 109.4 104.0 100.0 100.2
Exchange rate: Rs:US$ (av) 65.1 66.8 73.0 70.8 72.1 73.4
Exchange rate: US$:€ (av) 1.13 1.19 1.18 1.21 1.21 1.24

India 9
Economic growth
We forecast that real GDP will expand by an average of 7.9% a year in 2018/19 2022/23, making
India the fastest-growing major economy over the period. Economic growth will remain
underpinned by strength in domestic demand. We expect private consumption to make the largest
contribution to growth, rising by an average of 8% a year in 2018/19-2022/23. Public spending
ahead of the parliamentary and state elections will be a key source of support in the early part of
the forecast period, with government consumption growing by 11.8% a year on average in
2018/19-2019/20. Government spending will moderate over the latter part of the forecast period,
however. A bank recapitalisation initiative announced in late 2017 will lead to an improvement in
bank and corporate balance sheets. This will have a salutary effect on gross fixed investment,
especially towards the latter part of our forecast period; we forecast that gross fixed investment
will grow by an average of 10.8% a year in 2020/21-2022/23.
In factor cost terms, real GDP will be driven by growth in the services sector, averaging 9.2%
annually over 2018/19-2022/23. The sector will make the largest contribution to headline growth,
accounting for nearly 50% of GDP by the end of the forecast period. Meanwhile, industry will
benefit from the improving business environment and healthy investment, with output growing by
8.5% a year in 2018/19-2022/23. The agricultural sector will remain hostage to the vagaries of the
monsoon and, as such, its sluggishness will continue to dampen potential income growth in rural
areas. Government spending in the agricultural sector will be in the form of subsidies to support
prices for crops and waivers on farm loans. However, these measures will not help to restructure
the sector or lift its productivity.
Economic growth
(%; fiscal years beginning Apr 1st) 2017a 2018b 2019b 2020b 2021b 2022b
GDP 6.7 7.6 8.0 7.5 8.0 8.3
Private consumption 7.2 8.0 7.4 7.8 8.5 8.3
Government consumption 12.1 15.4 8.1 4.9 5.1 4.2
Gross fixed investment 2.9 5.9 7.9 8.7 11.0 12.8
Exports of goods & services 3.4 3.9 3.6 2.3 4.2 4.9
Imports of goods & services 8.7 4.4 4.1 3.8 5.7 6.2
Domestic demand 6.7 8.2 7.8 7.7 8.4 9.2
Agriculture 2.8 3.8 3.6 3.4 3.5 3.7
Industry 6.2 8.2 8.5 7.2 9.1 9.3
Services 8.8 9.4 9.7 8.6 8.7 9.8
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.
Inflation
Consumer prices will rise by an average of 5% annually in 2018-22. This acceleration, from on
average 3.3% in 2017, will be driven mainly by two factors: food price inflation and an increase in
the cost of crude oil. The food and beverage segment has a weighting of about 45% in the
consumer price index, and so any volatility in agricultural output will adversely affect price
stability. In addition, we forecast that oil prices will average US$60.9/barrel (dated Brent Blend) in
2018-22, compared with an estimated US$54.4/b in 2017. This will place upward pressure on costs
in sectors such as agriculture and transport that consume large amounts of fuel. Increased public
spending will also add to inflationary pressures, and we expect the government to raise the
support prices (the minimum guaranteed prices) for crops to shore up its support among farmers
ahead of the 2019 general elections. As a result, average annual inflation will peak at 5.3% in 2019,
before cooling to 4.7% in 2020 as the rupee appreciates and oil prices dip.

India 10
Exchange rates
In the early part of the forecast period the rupee will be under pressure to depreciate owing to the
strength of the US dollar on the back of the tighter monetary policy adopted by the Federal
Reserve (the US central bank). The rupee will also face depreciation pressure as portfolio inflows
slow in comparison with the high level seen in 2017. Moreover, India's dual deficits on the fiscal
and current accounts will keep investors cautious. As a result, we expect the rupee to depreciate
markedly, to an average of Rs73:US$1 in 2019, from Rs65.1:US$1 in 2017. However, interest-rate
increases by the RBI will provide some support to the rupee during this period. The currency's
prospects will improve in 2020, when we expect the US economy to experience a shallow
downturn. This will weaken the US dollar against other currencies, including the rupee. The rupee
will also be helped by oil prices, which will be more subdued in 2020, helping to trim the current-
account deficit. This trend will be short-lived, however, as oil prices will pick up from 2021 and
India's current-account deficit will widen, putting further downward pressure on the currency
towards the end of the forecast period.
Depreciation pressures could be exacerbated by capital out flows if investor confidence in India
or emerging markets were to weaken. However, we believe that India's relatively healthy
macroeconomic outlook, combined with the central bank's high levels of foreign-exchange
reserves, will limit the risk of significant exchange-rate volatility.
External sector
India's current-account deficit will remain wide in 2018-22, driven by high imports of crude oil.
These will push up the goods trade deficit. Merchandise exports will continue to grow but will be
insufficient to reduce the deficit. Although the services balance will continue to make a positive
contribution to the current account in 2018-22, the rate of growth in services exports will be
relatively modest. This will be largely because of growing protectionism in the US (which
adversely affects sectors such as business-process outsourcing and information technology), as
well as more intense competition from other countries. Secondary income inflows will also rise.
However, these face risks, as countries in the Middle East (a key destination for Indian workers)
have started to promote the hiring of local citizens, and this could adversely remittance flows to
India.
Forecast summary
Forecast summary
(% unless otherwise indicated)
2017a 2018b 2019b 2020b 2021b 2022b
Real GDP growthc 6.7 7.6 8.0 7.5 8.0 8.3
Industrial production growth 3.0 4.9 6.3 5.2 6.7 7.1
Unemployment rate (av) 8.5 8.7 8.7 8.4 8.3 8.1
Consumer price inflation (av) 3.3d 5.1 5.3 4.7 4.8 5.1
Consumer price inflation (end-period) 5.3d 4.5 5.0 4.8 4.9 5.0
Short-term interbank rate 6.5d 6.8 6.9 6.5 6.9 7.1
Government balance (% of GDP)c -3.3 -3.4 -3.2 -3.1 -3.0 -3.0
Exports of goods fob (US$ bn) 300.5 331.3 342.1 342.2 353.2 370.4
Imports of goods fob (US$ bn) -444.6 -502.8 -510.9 -516.3 -553.0 -595.7
Current-account balance (US$ bn) -45.3 -59.0 -59.8 -58.0 -80.9 -99.4
Current-account balance (% of GDP) -1.8 -2.2 -2.1 -1.8 -2.3 -2.6
Total foreign debt (US$ bn; year-end) 473.8 479.4 504.9 532.2 560.7 581.6
Exchange rate Rs:US$ (av) 65.12d 66.77 73.01 70.78 72.08 73.40
Exchange rate Rs:US$ (end-period) 63.93d 66.57 72.02 68.78 71.58 74.41
Exchange rate Rs:¥100 (av) 58.07d 59.98 66.73 68.05 72.08 73.25
Exchange rate Rs:€ (av) 73.54d 79.45 86.16 85.28 86.85 90.83
a b c
Economist Intelligence Unit estimates. Economist Intelligence Unit forecasts. Fiscal years (beginning
April 1st of year indicated). d Actual.

India 11
Quarterly forecasts
Quarterly forecasts
2017 2018 2019
1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr
GDP
% change, quarter on quarter 1.8 1.0 2.1 1.9 2.8 0.6 2.4 2.2 1.5 0.7 2.8 3.0
% change, year on year 6.1 5.6 6.2 7.0 8.1 7.6 7.8 8.1 6.8 6.9 7.4 8.3
Private consumption
Government consumption
% change, quarter on quarter 1.1 8.0 -8.5 13.0 2.4 2.6 4.4 4.2 3.5 -0.4 1.8 2.0
Gross fixed investment
% change, quarter on quarter -1.6 4.1 1.6 -3.1 2.1 1.2 3.0 2.8 2.1 0.3 2.5 2.7
% change, year on year -1.9 1.5 4.7 0.8 4.6 1.7 3.1 9.4 9.4 8.4 7.9 7.8
Exports of goods & services
% change, quarter on quarter 5.4 -5.4 0.5 9.0 -1.6 -0.7 1.1 0.9 0.3 -0.2 2.0 2.1
% change, year on year 9.6 1.1 1.3 9.2 2.0 7.1 7.7 -0.3 1.6 2.1 3.0 4.2
Imports of goods & services
% change, quarter on quarter 9.6 3.9 -4.5 1.0 4.4 -0.3 1.5 1.3 0.7 -0.3 1.9 2.1
Domestic demand
Consumer prices
Producer prices
% change, quarter on quarter 2.1 -0.8 0.6 1.8 1.2 0.6 0.4 0.5 1.2 1.3 1.3 0.2
Exchange rate Rs:US$
Average 67.0 64.5 64.3 64.7 68.9 63.0 68.1 67.1 74.5 71.3 72.3 74.0
End-period 64.8 64.7 65.4 63.9 65.9 65.5 67.6 70.8 72.9 71.8 73.1 74.0
Interest rates (%; av)
Money market rate 6.6 6.5 6.4 6.4 6.7 6.7 6.8 6.8 6.9 6.9 7.0 7.0
Long-term bond yield 7.1 6.8 6.6 6.6 7.2 7.3 7.4 7.4 7.5 7.6 7.5 7.3

India 12
Data and charts

Annual data and forecast
2013a 2014a 2015a 2016a 2017b 2018c 2019c
GDPd
Nominal GDP (US$ bn) 1,856 2,036 2,089 2,262 2,515 2,690 2,811
Nominal GDP (Rs bn) 112,309 124,471 136,772 151,707 164,950 183,359 204,033
Real GDP growth (%) 6.4 7.5 7.9 7.1 6.7 7.6 8.0
Expenditure on GDP (% real change)d
Private consumption 7.3 6.3 6.1 8.8 7.2 8.0 7.4
Government consumption 0.7 9.3 3.0 21.1 12.1 15.4 8.1
Gross fixed investment 1.6 3.3 6.5 2.4 2.9 5.9 7.9
Exports of goods & services 7.8 1.9 -5.4 4.4 3.4 3.9 3.6
Imports of goods & services -8.1 0.9 -5.9 2.3 8.7 4.4 4.1
Origin of GDP (% real change)d
Agriculture 5.6 -0.2 0.7 4.9 2.8 3.8 3.6
Industry 3.8 7.5 8.8 5.6 6.2 8.2 8.5
Services 8.8 10.7 10.7 8.9 8.8 9.4 9.7
Population and income
Population (m) 1,279 1,294 1,309 1,324 1,339 1,354 1,369
GDP per head (US$ at PPP) 5,249 5,679 6,137 6,578 7,066 7,690 8,336
Fiscal indicators (% of GDP)d
Central government revenue 9.4 9.2 9.1 9.5 9.8 10.4 10.7
Central government expenditure 13.9 13.2 13.0 13.0 13.2 13.8 13.9
Central government balance -4.5 -4.0 -3.9 -3.5 -3.3 -3.4 -3.2
Net public debt 52.2 51.5 51.9 50.3 50.4 49.3 48.1
Prices and financial indicators
Exchange rate Rs:US$ (av) 58.60 61.03 64.15 67.20 65.12a 66.77 73.01
Consumer prices (av; % change) 9.9 6.6 4.9 4.9 3.3a 5.1 5.3
Producer prices (av; % change) 5.4 3.4 -3.9 -0.1 3.4a 3.5 3.7
Stock of money M1 (% change) 9.8 10.0 12.3 -18.9 45.8 11.5 13.1
Stock of money M2 (% change) 14.8 10.7 10.7 6.2 10.5 14.2 13.7
Lending interest rate (av; %) 10.3 10.3 10.0 9.7 9.5 9.2 9.1
Current account (US$ m)
Trade balance -162,577-144,048 -136,885 -107,475 -144,142 -171,498 -168,826
Goods: exports fob 319,719 328,387 272,353 268,615 300,450 331,260 342,051
Goods: imports fob -482,296-472,433 -409,238 -376,090 -444,592 -502,758 -510,878
Services balance 70,441 76,077 73,716 65,896 68,637 76,001 71,066
Primary income balance -21,801 -24,945 -23,378 -27,361 -27,391 -25,439 -24,774
Secondary income balance 64,814 65,601 64,154 56,827 57,632 61,914 62,737
Current-account balance -49,123 -27,316 -22,393 -12,113 -45,264 -59,022 -59,798
External debt (US$ m)
Debt stock 427,296 457,552 478,875 456,140 473,824 479,395 504,891
Debt service paid 38,717 92,247 49,745 77,145 59,004 66,502 64,792
Principal repayments 28,931 80,774 38,773 65,972 47,460 52,755 48,790
Interest 9,785 11,473 10,973 11,173 11,543 13,747 16,002
International reserves (US$ m)
Total international reserves 296,218 322,833 351,551 359,729 410,815 447,328 463,073
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years
(beginning April 1st of year indicated).
Source: IMF, International Financial Statistics.

India 13
Quarterly data
2016 2017
1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr
Central government finance (Rs m)
Revenue 4,151 1,855 3,942 3,888 4,713 2,090 4,412 n/a
Expenditure 4,593 5,118 5,159 4,420 5,051 6,507 4,985 n/a
Balance -442 -3,263 -1,217 -533 -338 -4,417 -573 n/a
Output
GDP at constant 2004/05 prices (Rs bn)a 29,367 29,815 30,276 30,632 31,168 31,487 32,149 n/a
Real GDP (% change, year on year) 9.2 7.8 7.2 7.3 6.1 5.6 6.2 n/a
Industrial production index (2004/05=100) 121.4 118.2 117.2 119.3 125.2 120.5 121.1 n/a
Industrial production (% change, year on
5.4 7.1 4.5 3.8 3.1 1.9 3.3 n/a
year)
Prices
Consumer prices (2010=100) 127.3 129.3 129.8 130.4 131.8 132.0 133.8 n/a
Consumer prices (% change, year on
5.2 5.6 5.2 3.8 3.6 2.1 3.0 n/a
year)
Wholesale prices (2004/05=100)
General index 108.5 110.5 110.6 111.5 113.9 113.0 113.7 115.8
Fuel 77.3 81.6 83.0 86.8 93.7 90.7 n/a n/a
Manufactured goods 108.4 109.7 110.3 111.0 111.9 112.6 n/a n/a
Financial indicators
Exchange rate Rs:US$ (av) 67.5 66.9 67.0 67.4 67.0 64.5 64.3 64.7
Exchange rate Rs:US$ (end-period) 66.3 67.6 66.7 68.0 64.8 64.7 65.4 63.9
Deposit rate (av; %) 7.9 7.6 7.5 7.2 7.0 7.0 6.8 n/a
Lending rate (av; %) 9.7 9.7 9.7 9.6 9.6 9.5 n/a n/a
3-month money market rate (av; %) 7.9 7.3 7.0 6.5 6.6 6.5 6.4 6.4
M1 (end-period; Rs bn)b 26,025 26,653 28,286 19,946 26,820 27,010 28,730 29,087
M1 (% change, year on year) 13.5 13.7 20.4 -18.9 3.1 1.3 1.6 45.8
M2 (end-period; Rs bn)b 116,176119,240124,900120,058127,919127,585131,843132,724
M2 (% change, year on year) 10.1 10.3 13.6 6.2 10.1 7.0 5.6 10.5
BSE Sensex (end-period; 1978/79=100) 25,342 27,000 27,866 26,626 29,621 30,922 31,284 34,057
BSE Sensex (% change, year on year) -9.4 -2.8 6.5 1.9 16.9 14.5 12.3 27.9
Sectoral trends
Production index (2004/05=100)
Manufacturing 122.5 119.2 120.0 119.5 125.2 121.1 123.0 n/a
Mining 109.0 98.6 86.9 107.1 117.5 99.7 93.2 n/a
Electricity 133.3 144.4 143.9 139.3 139.0 152.0 152.6 n/a
Foreign trade (US$ m)
Exports fob 64,956 65,926 66,058 67,483 76,974 71,696 74,590 76,324
- - - - -
Imports cif -83,596 -84,892 -90,447
102,559 104,825 113,474 107,079 119,052
Trade balance -18,639 -18,966 -24,390 -35,076 -27,851 -41,778 -32,489 -42,728
Foreign payments (US$ m)b
Merchandise trade balance fob-fob -24,755 -23,835 -25,612 -33,273 -29,722 -41,994 -32,798 n/a
Services balance 16,077 15,745 16,294 17,780 17,636 18,285 18,421 n/a
Primary income balance -6,621 -6,312 -8,051 -6,377 -5,552 -5,767 -8,490 n/a
Net transfer payments 14,982 14,020 13,919 13,906 14,205 14,475 15,654 n/a
Current-account balance -318 -382 -3,449 -7,964 -3,433 -15,001 -7,213 n/a
Reserves excl gold (end-period) 341,189344,030351,667341,145350,924366,987379,771 n/a
a At market prices. b Reserve Bank of India.
Sources: IMF, International Financial Statistics; Centre for Monitoring Indian Economy, Monthly Review of the Indian
Economy; Financial Times; Reserve Bank of India.

India 14
Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate Rs:US$ (av)
2015 62.2 62.0 62.4 62.8 63.8 63.9 63.6 65.1 66.2 65.1 66.1 66.6
2016 67.3 68.2 67.0 66.5 66.9 67.3 67.2 66.9 66.7 66.7 67.6 67.9
2017 68.1 67.1 65.9 64.5 64.4 64.4 64.5 64.0 64.4 65.1 64.9 64.2
Exchange rate Rs:US$ (end-period)
2015 61.8 61.8 62.6 63.6 63.8 63.8 64.0 66.3 65.7 65.2 66.8 66.3
2016 67.9 68.6 66.3 66.5 67.2 67.6 67.0 67.0 66.7 66.9 68.5 68.0
2017 67.8 66.7 64.8 64.2 64.5 64.7 64.1 64.0 65.4 64.8 64.4 63.9
Money supply M1 (% change, year on year)
2015 9.0 10.7 11.3 10.2 9.7 9.2 10.7 10.9 11.1 11.8 11.6 12.3
2016 11.6 13.0 13.5 14.4 12.2 13.7 13.6 14.6 20.4 14.8 -13.2 -18.9
2017 -14.1 -10.9 3.1 -2.3 -1.2 1.3 1.5 1.7 1.6 2.7 35.0 45.8
Money supply M3 (% change, year on year)
2015 10.8 11.2 10.9 10.8 10.8 10.6 11.1 11.1 10.7 10.6 10.4 10.7
2016 10.9 11.1 10.1 10.8 9.9 10.3 10.1 10.0 13.6 10.4 8.1 6.2
2017 6.0 6.1 10.1 6.7 6.6 7.0 6.7 6.7 5.6 6.5 8.8 10.5
Money market rate (end-period; %)
2015 8.56 8.64 8.61 8.29 8.31 8.06 7.95 7.79 7.73 7.28 7.36 7.42
2016 7.57 8.07 8.19 7.29 7.30 7.17 7.00 6.92 6.93 6.70 6.51 6.40
2017 6.60 6.58 6.56 6.52 6.56 6.56 6.48 6.31 6.29 6.32 6.37 6.42
Lending rate (av; %)
2015 10.3 10.3 10.3 10.3 10.0 10.0 10.0 10.0 10.0 9.7 9.7 9.7
2016 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.6 9.6 9.6
2017 9.6 9.6 9.6 9.5 9.5 9.5 n/a n/a n/a n/a n/a n/a
Industrial production (% change, year on year)
2015 1.8 3.0 2.4 0.7 1.8 1.0 1.3 3.7 2.2 9.0 0.8 3.1
2016 4.0 7.2 5.2 6.0 7.3 8.0 4.5 4.0 5.0 4.2 5.1 2.4
2017 3.5 1.2 4.4 3.2 2.9 -0.3 1.0 4.8 4.1 2.0 8.4 n/a
BSE Sensex stockmarket index (end-period; 1978/79=100)
2015 29,183 29,220 27,957 27,011 27,828 27,781 28,115 26,283 26,155 26,657 26,146 26,118
2016 24,871 23,002 25,342 25,607 26,668 27,000 28,052 28,452 27,866 27,942 26,653 26,626
2017 27,656 28,743 29,621 29,918 31,146 30,922 32,515 31,730 31,284 33,213 33,149 34,057
Consumer prices (% change, year on year; av; seasonally adjusted)
2015 5.3 5.4 5.3 4.8 4.9 5.4 3.5 3.8 4.5 5.0 5.5 5.7
2016 5.7 5.3 4.8 5.3 5.7 5.8 6.0 5.1 4.4 4.3 3.6 3.5
2017 3.1 3.6 3.9 3.0 2.1 1.4 2.5 3.2 3.4 3.6 4.9 5.3
Wholesale prices (% change, year on year; av; seasonally adjusted)
2015 -2.4 -3.5 -3.7 -3.3 -3.0 -3.0 -5.0 -6.1 -5.5 -4.8 -3.6 -2.4
2016 -2.5 -2.3 -2.0 -1.1 -0.9 -0.2 0.5 1.1 1.4 1.4 1.7 2.1
2017 4.2 5.5 5.2 3.7 2.2 0.9 1.9 3.3 3.3 3.8 4.0 3.6
Total exports fob (US$ m)
2015 24,415 22,008 24,034 22,137 22,529 22,324 23,281 21,583 21,869 21,456 19,561 22,593
2016 21,199 20,846 22,912 20,863 22,407 22,656 21,692 21,597 22,768 23,361 20,066 24,056
2017 22,286 25,544 29,145 24,592 23,976 23,128 22,387 23,566 28,636 23,098 26,196 27,030
Total imports cif (US$ m)
2015 32,265 28,725 35,429 33,507 32,838 33,536 36,372 33,982 32,035 31,148 29,896 34,096
2016 28,867 27,419 27,310 25,689 28,286 30,917 29,305 29,303 31,839 34,495 33,462 34,602
2017 31,924 33,231 39,669 38,202 38,307 36,965 33,951 35,527 37,602 37,117 40,025 41,910
Trade balance fob-cif (US$ m)
2015 -7,850 -6,717 -11,395 -11,369 -10,309 -11,213 -13,091 -12,399 -10,166 -9,692 -10,335 -11,503
2016 -7,668 -6,573 -4,399 -4,826 -5,879 -8,261 -7,613 -7,706 -9,071 -11,134 -13,396 -10,546
2017 -9,639 -7,688 -10,524 -13,611 -14,331 -13,837 -11,563 -11,960 -8,965 -14,019 -13,829 -14,880
Foreign-exchange reserves excl gold (US$ m)
2015 310,607 319,300 323,825 333,726 334,318 338,107 336,337 334,621 333,345 336,654 333,852 334,311
2016 333,078 330,199 341,189 344,141 342,399 344,030 346,012 346,250 351,667 346,823 341,976 341,145
2017 344,545 345,181 350,924 353,698 360,820 366,987 374,515 377,935 379,771 379,330 382,006 n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

India 15
Annual trends charts

India 16
Quarterly trends charts

India 17
Monthly trends charts

India 18
Comparative economic indicators
Basic data
Land area
3,287,263 sq km (including Indian-administered Kashmir); of the total, 57% is agricultural land and
16% is forest area
Population
1.34bn (2017; UN)

India 19
Main towns
Population of metropolitan areas and regions in millions (2011 census)
New Delhi (capital): 21.8
Mumbai (Bombay): 20.8
Kolkata (Calcutta): 14.6
Chennai (Madras): 8.9
Bangalore: 8.7
Hyderabad: 7.7
Climate
Varied: humid subtropical in Ganges basin, semi-arid in the north-west, tropical humid in north-
east and most of the peninsula, tundra in the Himalayas. All areas receive rain from the south-west
monsoon in June-September; the south is also served by the north-east monsoon in January-
March
Weather in New Delhi (altitude 218 metres)

Hottest month, May, 2641°C (average daily minimum and maximum); coldest month, January, 7
21°C; driest month, November, 4 mm average rainfall; wettest month, July, 180 mm average rainfall
Languages
Hindi is the official language and the primary tongue of 30% of the population. English is an
additional language used for official purposes and also used widely in business circles. Individual
states may legislate an official language, and several have done so
Religions
Hindu (79.8% in 2011 census); Muslim (14.2%); Christian (2.3%); Sikh (1.7%); Buddhist (0.7%);
Jain (0.4%)
Measures
Metric system. Numbers are often written in lakhs (100,000) and crores (10m)
Currency
Rupee (Rs); Rs1 = 100 paisa. Average exchange rate in 2017: Rs65.1:US$1
Fiscal year
April 1st-March 31st
Time
5 hours 30 minutes ahead of GMT
Public holidays
Republic Day (January 26th); Independence Day (August 15th); Mahatma Gandhi’s birthday
(October 2nd); also major Hindu, Muslim, Christian and other religious holidays

India 20
Political structure
Official name
Republic of India
Form of state
India 21
Federal republic, with 29 states and seven union territories
Head of state
The president, Ram Nath Kovind, was elected in July 2017 for a five-year term by the members of
the central and state legislatures
The executive
The prime minister presides over a Council of Ministers chosen from the elected members of
parliament (MPs)
National legislature
Bicameral. The Lok Sabha (the lower house) has 545 members—543 elected from singlemember
constituencies (79 seats are reserved for “scheduled castes” and 40 for “scheduled tribes”) and
two representatives of Anglo-Indians appointed by the president. The Rajya Sabha (the upper
house) has 245 members—233 elected by weighted votes of the elected MPs and the legislative
assemblies of states and union territories, and 12 appointed by the president
State legislatures
Unicameral or bicameral, with elected members; state governors are appointed by the president
Legal system
Based on the 1950 constitution and English common law
National government
The National Democratic Alliance, a coalition led by the Bharatiya Janata Party (BJP), won the
largest number of seats at the parliamentary election held in April-May 2014 and formed a
government
National election
The most recent election for the Lok Sabha was held in April-May 2014; the next is scheduled to
take place by May 2019
Main political organisations

BJP; Indian National Congress; All India Anna Dravida Munnetra Kazhagam (AIADMK);
Trinamool Congress (TMC); Biju Janata Dal (BJD); Shiv Sena (SHS); Telugu Desam Party (TDP);
Telangana Rashtra Samithi (TRS); Communist Party of India (Marxist), or CPI (M); YSR Congress
Party (YSRCP); Nationalist Congress Party (NCP); Lok Janshakti Party (LJP); Samajwadi Party
(SP); Aam Aadmi Party (AAP); Rashtriya Janata Dal (RJD); Janata Dal (United); Bahujan Samaj
Party (BSP); Dravida Munnetra Kazhagam (DMK)
Key ministers
Prime minister: Narendra Modi (BJP)
Agriculture: Radha Mohan Singh (BJP)
Civil aviation: Ashok Gajapathi Raju Pusapati (TDP)
Communications & information technology: Ravi Shankar Prasad (BJP)
Defence: Nirmala Sitharaman (BJP)
External affairs: Sushma Swaraj (BJP)
Finance: Arun Jaitley (BJP)
Health & family welfare: Jagat Prakash Nadda (BJP)
Home affairs: Rajnath Singh (BJP)
Power: Rajkumar Singh (BJP)
India 22
Railways & coal: Piyush Goyal (BJP)

Rural development: Narendra Singh Tomar (BJP)
Urban development: Hardeep Singh Puri (BJP)
Central bank governor

Urjit Patel

India 23
Recent analysis
Generated on February 12th 2018
The following articles have been written in response to events occurring since our most recent forecast was
released, and indicate how we expect these events to affect our next forecast.
Politics
Forecast updates
India looks to rebuild ties with Nepal
February 5, 2018: International relations
Event
On February 2nd India's minister of external affairs, Sushma Swaraj, completed a two-day visit
to Nepal.
Analysis
Ms Swaraj's visit to Nepal came amid ongoing negotiations for the formation of a new government
in that country. An alliance of left parties—comprising the Communist Party of Nepal (Unified
MarxistLeninist), or CPN (UML), and the Communist Party of Nepal (Maoist Centre)—have been
entangled in power-sharing talks since their victory in elections held late last year. During her
visit, Ms Swaraj met Nepal's president, Bidya Devi Bhandari, the outgoing prime minister, Sher
Bahadur Deuba, the leader of the CPN (UML), Khadga Prasad Sharma Oli, and several leaders
from regional parties. As expected, no new agreements between the two countries were
announced.
Bilateral relations became tense in 2015 when the Nepali government accused India of enacting an
unofficial blockade on supplies of essential goods such as fuel, medicines and earthquake relief
material to Nepal in support of protesting ethnic Madhesis. This caused Nepal to turn to China for
supplies to counter the embargo. In order to regain political influence in Nepal, India's
administration will need to rebuild its relationship with the CPN (UML) and Mr Oli, who served as
prime minister in 2015–16 and is widely tipped to become the next premier under the yet to be
confirmed new government. Mr Oli's nationalist rhetoric and perceived willingness to stand up to
India has contributed to the CPN (UML)'s recent electoral success.
We believe that the latest high-level visit by Ms Swaraj is an attempt to begin the process of
restoring Indo-Nepali relations to their former cordiality, and to counter China's growing influence
in Nepal. Indeed, the Indian government's budget for fiscal year 2018/19 (April–March), released
on February 1st, contains a 74% increase in financial aid to Nepal at Rs6.6bn (US$100m). Chinese
investments related to road and energy infrastructure projects in Nepal have increased markedly
since 2015, and we expect this trend to continue as a new government assumes power in Nepal.
Nonetheless, we do not expect Indo-Nepali relations to deteriorate further, as India still accounts
for the majority of Nepal's external trade.
Impact on the forecast

The latest development further reiterates our view that, despite an increase in economic
engagement with China, Nepal will continue to maintain a close economic relationship with India.
Nepal will benefit from increased investments and financial aid from both India and China in 2018–
22.

India 24
By-election defeats show growing anti-incumbency sentiment

February 5, 2018: Election watch
Event
On February 1st the Election Commission released results showing that the Bharatiya Janata Party
(BJP) was defeated in by-elections held for two seats in the Lok Sabha (the lower house of
parliament) and one state assembly constituency in Rajasthan.
Analysis
All three constituencies were previously represented by members of the BJP, which is the
dominant party in the ruling National Democratic Alliance (NDA) at central level. Rajasthan is
currently governed by the party, and is scheduled to hold state assembly elections later this year.
The defeat of the BJP candidates in these by-elections is thus a setback to the ruling party's
efforts to retain power in the state of Rajasthan, and indeed to its national ambitions to win re-
election in the parliamentary poll scheduled for early 2019.
The BJP-controlled NDA has been electorally dominant since winning the general election in 2014,
subsequently securing victories in several key state assembly elections. This largely stems from
the continued popularity of the prime minister, Narendra Modi. However, in recent months the
NDA's grip on power has seemed to loosen. Although the BJP retained power in its stronghold,
Gujarat, in state assembly elections held in December 2017, the narrow margin of victory indicated
that anti-incumbency sentiment has risen among some sections of the electorate, Mr Modi's
popularity notwithstanding. The main opposition party, the Indian National Congress, has
consistently attacked the NDA over the relatively sluggish economy, distress in the agricultural
sector and rising communal strife.
We expect the government to take steps to curtail rising anti-incumbency sentiment. The budget
for fiscal year 2018/19 (April–March), for example, is expansionary. It provides several benefits to
labour-intensive sectors and aims for higher spending on agriculture, infrastructure and social
welfare. These measures seek to woo voters and provide stimulus to the economy. Furthermore,
despite the gains made by Congress in the recent by-elections, there is no opposition leader as
popular as Mr Modi. The lack of a united opposition alliance will also help the BJP by splitting the
anti-incumbency vote. Given these factors, we expect the NDA to remain politically dominant in
the forecast period (2018–22).

Despite the by-election defeats, we continue to expect the NDA to secure re-election at the next
lower-house poll in 2019.

India 25
Bhutan's prime minister attends investor summit in India

February 8, 2018: International relations
Event
On February 4th Bhutan's prime minister, Tshering Tobgay, concluded a two-day visit to India's
Assam state, where he attended the Advantage Assam–Global Investors Summit 2018 and the
opening of a consulate office in the state's largest city, Guwahati.
Analysis
Assam and India's other north-eastern states are central to that country's foreign policy, which
aims to improve trade and relationships with its eastern neighbours, including Bhutan,
Bangladesh and Nepal, an area where China has gained influence in recent years. Assam is a
popular destination for Bhutanese traders, students, pilgrims and medical patients, presenting
several opportunities for deeper collaboration. According to the latest available data from India's
Ministry of Development of North-eastern Region, bilateral trade from Assam's Hatisar land
custom station to Galemphoo in Bhutan amounted to around Rs495m (US$9.3m) in fiscal year
2010/11 (April–March).
Speaking at the summit, Mr Tobgay pitched Bhutan as an investment destination to government
officials and business delegates from other countries, pointing to the nation's safety, stability,
ease of doing business, cheap electricity and its free-trade agreement with India. Mr Tobgay's
visit also saw the opening of Bhutan's second consulate in India. The establishment of a new
consulate should ease travel and promote investment from and through India. Mr Tobgay also
met Assam's chief minister, Sarbananda Sonowal. The two held a discussion on the expansion of
business and cultural ties.
Mr Tobgay also met Bangladesh's industries minister, Amir Hossain Amu, at the event and the
two expressed a willingness to enhance co-operation by increasing bilateral investment,
connectivity and trade. While Bhutan stands to gain from increased imports of higher-quality
medicines from Bangladesh, as was discussed at the meeting, Bangladesh has expressed interest
in importing electricity from Bhutan.
The latest developments support our view that India will remain Bhutan's closest economic and
strategic partner over the foreseeable future. Bhutan's engagement with the rest of the world will
remain limited to a small amount of trade with neighbouring countries.

We retain our forecast that India will remain Bhutan's biggest trade and investment partner in
2018–19. Bhutan's bilateral trade with Bangladesh will remain minimal and will not have a
significant impact on the external-sector performance of either country.
Analysis
Democracy in Asia: a clash of communities
February 2, 2018
In The Economist Intelligence Unit's latest Democracy Index, the score for Asia and Australasia
falls from a peak of 5.74 in 2016 to 5.63 in 2017, the region's worst performance in six years.
Two themes drove the score changes. First, rising communal tensions have set back the
environment for democracy in some countries. Second, the US government's more transactional
approach to international relations under the presidency of Donald Trump has weakened the
pressure on the region's governments to adhere to democratic norms. In this article, we analyse
the first theme.
In recent years Asia's emerging democracies have move towards the frontier of "full democracy",
but in 2017 the environment for democracy in the region as a whole experienced a setback. The
two most prominent under-performers were India and Indonesia, the region's largest democracies
in terms of population. India's score fell from 7.81 in 2016 to 7.23 in 2017, and Indonesia's dropped

India 26
from 6.97 to 6.39. As such, out of the 28 countries in the region that are covered by the index,
India placed sixth (down from fifth in 2016), while Indonesia was ranked 12th (down from eighth).
Both these emerging economic powerhouses experienced a backlash against minority groups.
Communal tensions also rose in Myanmar, which saw a decline in its score to 3.83 in the 2017
index, from 4.20 previously.
Protection of minority rights, respect for basic human rights (including freedom of religion) and a
culture of political pluralism are essential for the functioning of a healthy democracy. The rise in
communal strains thus puts pressure on one of the key pillars of support for a democratic system
of governance. If unaddressed, such social friction tends to result in increased political instability,
which would pose a further challenge to democratic institutions.
The dominant majority

The impact of rising communal strains in the emerging democracies of Asia has manifested in
different areas of our scoring within the Democracy Index. For Muslim-majority Indonesia, this
has been reflected in its poor score for electoral process and pluralism. The tumultuous
gubernatorial election for the country's capital, Jakarta, eventually saw the defeat of an ethnic-
Chinese, Christian candidate, Basuki Tjahaja Purnama (known as Ahok), and his incarceration
under the charge of blasphemy against Islam. This highlighted significant structural problems in
the archipelago's democratic institutions. In the election's aftermath, Indonesia did not suffer as
much in terms of social cohesion, although this could have easily been eroded at a time when an
obvious representative of two minority groups had been subject to attacks by Islamist groups.
(The country's political culture score was thus stable in 2017.) Moreover, criticism from Islamists
was not the only reason that Ahok lost. However, we believe that at the institutional level, the
prospects for egalitarian representation of minority groups in senior political offices have
diminished in the wake of the election.
By contrast, both India and Myanmar experienced drops in their scores for political culture and
civil liberties. As a country at an early stage of developing its democratic institutions, Myanmar's
problem with the Rohingya community has much to do with a long-standing issue of identity.
Many in Myanmar do not view the Rohingya as Burmese citizens, and there has been broad
support for the military's crackdown against them within both the electorate and the government.
The depth of this support shows that the culture for the protection of human rights, civil liberties
and minority groups remains very underdeveloped in Myanmar. This is an important reason why
it is still rated as an "authoritarian regime" in our Democracy Index, despite the fact that general
elections were held in 2015.
Pandering to caste and faith

India offers another variation on this theme. India has conducted free and fair elections for nearly
70 years, many more than most emerging markets, and continues to score very highly in terms of
electoral process and pluralism. However, the political system in its current form incentivises
parties to pander to blocks of voters, such as castes and ethnic and religious minorities. The
Bharatiya Janata Party (which controls India's ruling National Democratic Alliance coalition) has
achieved great electoral success by pursuing an overtly pro-Hindu agenda that has sidelined the
concerns of minority religions. Together with associated organisations, it has been accused by its
critics of fanning religious tensions. Over the past year rising communal tensions have manifested
in many cases of violent street protests and vigilantism. Threats against detractors of the current
government, particularly in the press, have also risen. Together, this has negatively affected
India's scores in the political culture and civil liberties categories of the Democracy Index.
Fraught elections ahead

Looking ahead, it seems unlikely that the escalation in communal tensions across Asia in 2017 will
ease in 2018. Rising tensions will be fuelled by the increased use of social media by ethnic and
religious chauvinist groups emboldened to target a larger audience. The same sort of tensions
seen in Indonesia and India are likely to be notable in Malaysia and Sri Lanka this year, as we
expect both countries to go to the polls in elections that will be partly defined by ethnic tensions.
Moreover, with elections due in both India and Indonesia in 2019, politicking and campaigns
designed to attract the majority communities in those countries are more likely to intensify than
weaken. Identity politics will also remain a lasting theme for Myanmar, whose new political
India 27
establishment is still trying to build democratic institutions. The retreat to narrow identity politics
in such countries will continue to pose challenges for the health of democracy in Asia.
Economy
Forecast updates
Expansionary budget to put pressure on government finances
February 2, 2018: Fiscal policy outlook
Event
On February 1st the finance minister, Arun Jaitley, presented the budget for fiscal year 2018/19
(April–March) to parliament.
Analysis
As we expected, the budget for 2018/19 is expansionary. It proposes to raise spending on
agriculture, social welfare, transport and urban infrastructure. The adoption of a loose fiscal policy
stance is partly to stimulate the economy; we estimate that real GDP grew at its slowest pace in
four years in 2017/18. Some of the budget measures are designed to garner support for the ruling
National Democratic Alliance (NDA) from the large rural voter base ahead of the 2019 general
election. For instance, higher support prices for agricultural produce will raise rural income over
the short term.
The weakening of growth in 2017/18 is primarily owing to the lingering effects of the
demonetisation drive carried out in November 2016, as well as the disruptions caused by tax
reforms undertaken in July 2017. Together these have dampened investment activity, and fixed
investment is estimated to have expanded by a weak 2.9% in 2017/18. The increase in the
budgetary allocation for infrastructure, particularly roads and railways, will provide support to
investment activities in 2017/18. This supports our forecast that investment growth will accelerate
to 5.9% in 2018/19.
The expansionary fiscal stance taken in the budget will place pressure on the public finances, and
we expect the government to overshoot its revised fiscal deficit target of 3.3% of GDP for 2018/19,
up from 3% previously. After the April–May 2019 general election, when we expect the NDA to be
re-elected, the government will focus on fiscal consolidation and reduce the budget deficit to the
equivalent of 3% of GDP by 2022/23.

We continue to forecast that the fiscal deficit will average the equivalent of 3.4% of GDP in
2018/19. However, we continue to maintain that the government will move away from its loose
fiscal policy stance after the 2019 general election, and revert to fiscal consolidation in 2019/20–
2022/23.

India 28
Global stock markets see hefty falls amid inflation concerns

February 7, 2018: Inflation
Event
The Dow Jones Industrial Average recorded its biggest one day fall on February 5th. Big declines
were also recorded in markets in Germany, Japan and Hong Kong.
Analysis
Bond and stock markets in the US were spooked by suggestions that inflation could jump up,
necessitating higher interest rates. The proximate cause for the volatility was the jobs data on
February 2nd, which showed an acceleration in nominal year-on-year wage growth to 2.9% in
January, up from 2.7% in December. The change may look trivial, but the US labour market has
been largely immune to faster wage growth, even as the unemployment rate has fallen by several
percentage points. The increase in January gave rise to concerns that wage growth could
accelerate quickly in the coming months, forcing the Federal Reserve (the US central bank) to
tighten monetary policy more quickly than expected.
Despite our view that the stock markets are experiencing a necessary correction, a prolonged
period of decline would pose a risk to our economic outlook. There are two channels that would
transfer stock market falls into weaker economic growth. First, households would see a decline in
financial assets, triggering lower consumer spending. Second, the credit channel that funnels
loans to the private sector would be impaired; where banks experience sharp declines in their
valuations, their ability and willingness to lend to businesses also falls. This effect would be most
significant for highly leveraged small and medium-sized enterprises, resulting in lower investment
and job creation.
We do not expect the Fed to shift its path as a result of market volatility. It has been quite clear
that it intends to raise interest rates three times in 2018; markets are now more inclined to take the
central bank at its word. But nor do we believe that inflation in the US is about to spike. We have
long felt that the labour market still contains pockets of slack that will need to be absorbed before
wage growth will jump up. However, the volatility in early February is an important signal that the
global economy is moving into a new phase, where more and more central banks will begin to
reduce their loose monetary policy positions in response to vigorous growth rates.

Our forecast of three rate hikes by the Fed in 2018, followed by four more in 2019, remains
appropriate.

India 29
Central bank maintains monetary policy stance

February 8, 2018: Monetary policy outlook
Event
At its bimonthly monetary policy meeting on February 7th, the Reserve Bank of India (RBI, the
central bank) left its main policy interest rate, the repurchase (repo) rate, unchanged at 6%. The
reverse repo rate and the bank rate were also kept on hold, at 5.75% and 6.25% respectively.
Analysis
The RBI's decision to keep its monetary policy stance unchanged is aimed at supporting the
economy, which is on a path to recovery after the disruptive impact of tax reforms carried out in
July 2017. However, given that inflation-targeting remains the RBI's main policy priority, the
central bank will come under increasing pressure in the coming months to raise the repo rate in
order to control prices, which have been on an upward trajectory.
We expect oil prices (dated Brent Blend) to rise to an annual average of US$63/barrel in 2018, from
US$ 54.4/b in 2017. This will exert upward pressure on costs in sectors such as agriculture and
transport, which consume large quantities of fuel. Furthermore, higher transport costs will feed
through to the cost of consumer goods. The expansionary budget announced by the government
on February 1st will add to price pressures. Moreover, the 1.5% fall in the area sown for the rabi
crop (spring harvest, sown in winter) could also push up prices in the early part of the year if it
results in reduced supply of food.
As a result, we expect the RBI to tighten monetary policy this year. This is likely to come in the
form of two 25-basis-point increases in the repo rate over the course of 2018. As such, the repo
rate will stand at 6.5% by year–end.

We continue to expect the RBI to raise the repo rate in 2018 in order to keep prices under control.
No change to our outlook is required.

EIU India Feb 2018

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Generated on February 12th 2018

Hong Kong Geneva

This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by

Symbols for tables

Outlook for 2018-22

Data and charts

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Political and economic outlook

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

April 1st of year indicated). d Actual.

Key changes since December 19th

The month ahead

February 12th—Consumer price index (January): Inflationary pressures rose throughout 2017

Major risks to our forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Outlook for 2018-22

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Data and charts

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Annual trends charts

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Quarterly trends charts

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Monthly trends charts

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Comparative economic indicators

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Weather in New Delhi (altitude 218 metres)

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Main political organisations

Railways & coal: Piyush Goyal (BJP)

Central bank governor

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Impact on the forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

By-election defeats show growing anti-incumbency sentiment

Impact on the forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Bhutan's prime minister attends investor summit in India

Impact on the forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

The dominant majority

Pandering to caste and faith

Fraught elections ahead

Impact on the forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Global stock markets see hefty falls amid inflation concerns

Impact on the forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Central bank maintains monetary policy stance

Impact on the forecast

Country Report February 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

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