India Economic Report - December 2012
Growth in India’s economy remains lacklustre by recent standards. GDP grew by just 5.3% in Q3, the slowest pace since 2009. And the more recent indicators suggest that activity has remained subdued in Q4, with the composite PMI falling to 53.2 in November. As a result we have revised down our forecast for GDP growth to 5.3% for 2012 (from 5.6% previously), the slowest rate for a decade.
Looking ahead, conditions are expected to remain challenging in H1 2013. External demand is still weak, with goods exports in US$ terms contracting 4.2% year-onyear in November after an 11.8% fall in Q3. And domestic demand will continue to be held back by high inflation and the difficult investment climate.
Some of these headwinds will ease in H2 2013. Inflation is expected to fall back, as the recent increase in diesel prices and the impact of INR depreciation in H1 2012 drop away. External demand is also forecast to pick up, driven by accelerating growth in the US and China. But with the government still struggling to implement it’s recently announced reforms, questions remain over whether India’s full growth potential can be harnessed. We expect the economy to expand 5.7% in 2013.
Despite revising its target for the deficit for fiscal year 2012/13 to 5.3% of GDP (from 5.1% previously), the government’s inability to rein in spending and disappointing revenue growth, as highlighted by a recent 2G telecoms auction, mean that this new target is also likely to be missed. We expect the deficit to be 5.7% of GDP.
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