India

Politics:

• Analysis

  India politics: Quick View - Key ally withdraws from the UPA coalition

  Event

  On March 19th a key member of the United Progressive Alliance (UPA) coalition government, the Dravida Munnetra Kazhagam (DMK) party, announced that it would withdraw from the coalition in protest against the government's stance on human rights in Sri Lanka.

  Analysis

  The DMK's withdrawal is yet to be definitively confirmed, although the party-which holds 18 seats in the 543-member Lok Sabha (the lower house of parliament)-has said that its five ministers will resign from the federal cabinet soon. The UPA currently controls 248 seats in the Lok Sabha and enjoys confidence-and-supply arrangements with regional parties, which hold 47 seats between them, bringing its effective total to 295 members of parliament. Should the DMK make good its threat to leave, this tally would drop to 277 members.

  As we have previously noted, the government's lack of a reliable parliamentary majority means that a far-reaching programme of fiscal consolidation and structural reforms is not in prospect before the next general election, which is due by May 2014. However, even if the DMK leaves the UPA, we do not expect elections to be called early-the Indian National Congress party, which leads the UPA, will be keen to avoid going to the polls amid an economic slowdown, and the main opposition Bharatiya Janata Party has made only limited progress towards preparing for an election campaign (for example, it has yet to anoint a prime ministerial candidate formally).

  At the heart of the dispute with the DMK-a regional party from the Indian state of Tamil Nadu-is the government's stance towards Sri Lanka. India is expected to support a US-backed resolution being introduced next week at a meeting of the UN Human Rights Council that calls on the Sri Lankan government to do more to effect reconciliation with its ethnic minorities. However, the DMK wants the Indian government to support stronger wording in the resolution, such as terming the Sri Lankan administration's actions towards the end of the civil war as "genocide". The Indian government, while seeking to address the concerns of its own Tamil citizens, is simultaneously keen not to meddle in the affairs of another sovereign state.

  March 19, 2013

• Background

  India: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: The United Progressive Alliance (UPA) coalition won a second five-year term at the April-May 2009 general election. The Indian National Congress party, which dominates the ruling coalition, won 206 of the 543 elected seats in the Lok Sabha (the lower house of parliament). The UPA lacks a majority in its own right, and relies on the support of minor and regional parties to achieve a 272-seat majority. Congress's main rival at national level, the Bharatiya Janata Party (BJP), performed poorly in the 2009 poll, as did Congress's communist erstwhile allies. The main opposition grouping in parliament, the BJP-led National Democratic Alliance, has lost the full support of some of its member parties since the general election.

  Next election: A general election must be held by May 2014. The next presidential poll is due in 2017.

  Composition of Lok Sabhaa, May 2009 general election
  United Progressive Alliance (UPA; governing coalition)	262
  Indian National Congress	206
  All India Trinamool Congress	19
  Dravida Munnetra Kazhagam	18
  Nationalist Congress Party	9
  National Conference	3
  Jharkhand Mukti Morcha	2
  Indian Union Muslim League	2
  Kerala Congress (Mani)	1
  All India Majlis-e-Ittehadul Muslimeen	1
  Viduthalai Chiruthaigal Katchi	1
  National Democratic Alliance (NDA)	159
  Bharatiya Janata Party	116
  Janata Dal (United)	20
  Shiv Sena	11
  Rashtriya Lok Dal	5
  Shiromani Akali Dal	4
  Telangana Rashtra Samithi	2
  Asom Gana Parishad	1
  Third Front	74
  Left Front	20
  Bahujan Samaj Party	21
  Biju Janata Dal	14
  All India Anna Dravida Munnetra Kazhagam	9
  Telugu Desam Party	6
  Janata Dal (Secular)	3
  Haryana Janhit Congress	1
  Fourth Front	27
  Samajwadi Party	23
  Rashtriya Janata Dal	4
  Lok Janshakti Party	0
  Other parties & independents	21
  Totalb	545
  a The lower house. b Including two representatives of Anglo-Indians appointed by the president.
  Source: Election Commission.

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  August 28, 2012

• Structure

  India: Political structure

  Official name

  Republic of India

  Form of state

  Federal republic, with 28 states and seven union territories

  Head of state

  The president, Pranab Mukherjee, was elected in July 2012 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

  National legislature

  Bicameral. The Lok Sabha (the lower house) has 545 members-543 elected from single-member 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 members of parliament 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 United Progressive Alliance (UPA), a coalition led by the Indian National Congress, won the largest number of seats in the April-May 2009 general election and formed a government

  National election

  The most recent Lok Sabha election was held in April-May 2009; the next is due by May 2014

  Main political organisations

  Indian National Congress; Bharatiya Janata Party (BJP); Trinamool Congress (TMC); Dravida Munnetra Kazhagam (DMK); Samajwadi Party (SP); Rashtriya Janata Dal (RJD); Janata Dal (United); Bahujan Samaj Party (BSP); All India Dravida Munnetra Kazhagam (AIADMK); Biju Janata Dal (BJD); Rashtriya Lok Dal (RLD); Nationalist Congress Party (NCP); Communist Party of India (Marxist), or CPI (M)

  Prime minister: Manmohan Singh (Congress)

  Key ministers

  Agriculture: Sharad Pawar (NCP)

  Chemicals: M K Alagiri (DMK)

  Civil aviation: Ajit Singh (RLD)

  Coal: Sriprakash Jaiswal (Congress)

  Commerce & industry, textiles: Anand Sharma (Congress)

  Communications & information technology: Kapil Sibal (Congress)

  Defence: A K Antony (Congress)

  External affairs: Salman Khurshid (Congress)

  Finance: P Chidambaram (Congress)

  Home affairs: Sushil Kumar Shinde (Congress)

  Law & justice: Ashwani Kumar (Congress)

  Petroleum & natural gas: Veerappa Moily (Congress)

  Power: Jyotiraditya Scindia (Congress)

  Railways: Pawan Kumar Bansal (Congress)

  Rural development: Jairam Ramesh (Congress)

  Urban development: Kamal Nath (Congress)

  Central bank governor

  Duvvuri Subbarao

  January 03, 2013

• Outlook

  India: Key developments

  Outlook for 2013-17

  • The Indian National Congress-led United Progressive Alliance government is likely to complete its second five-year term, which ends in May 2014, despite problems of instability in the ruling coalition.
  • The need for Congress to focus on maintaining a viable coalition, potentially at the expense of policy and even ideology, will remain paramount in the run-up to the next general election.
  • The 2014 poll will return another coalition government, likely to be led by either Congress or the main opposition Bharatiya Janata Party (BJP). The political power of regional and caste-based parties will continue to grow.
  • Efforts to implement economic reforms will be impeded by the government's lack of a reliable parliamentary majority. Its plan to cut the budget deficit t0 3% of GDP by fiscal year 2016/17 (April-March) looks overly ambitious.
  • Real GDP growth (on an expenditure basis) will slow to an estimated 5.4% in 2012/13. Economic expansion will average 7.4% a year in 2013/14-2017/18, driven by private consumption and investment.
  • The Economist Intelligence Unit forecasts that the rate of inflation will slow in 2013-17. But it will still be rapid, with consumer prices rising by 7.6% a year on average as structural factors that tend to push up inflation persist.
  • The current-account deficit, which reached an estimated 4.2% of GDP in 2012, is forecast to narrow steadily in the next five years, to 2.2% in 2017.

  Review

  • The incumbent chief minister, Narendra Modi of the BJP, won a resounding victory in state polls in Gujarat in mid-December. Mr Modi is seen as likely to be the BJP's prime ministerial candidate at the general election in 2014.
  • Pakistan's interior minister, Rehman Malik, visited India in mid-December for the latest in a series of high-level bilateral meetings. His visit was marked by the launching of a liberalised visa regime between the two countries.
  • In its monetary policy review on December 18th the Reserve Bank of India (RBI) eschewed any further easing of policy, but indicated a move towards supporting growth, making a rate cut likely in the first quarter of 2013.
  • Non-seasonally adjusted factory output grew at its fastest pace in over a year in October, expanding by 8.2% year on year, largely owing to the effect of a low base.
  • Real GDP on a factor-cost basis (non-seasonally adjusted) slowed to 5.3% year on year in the second quarter of 2012/13 on the back of a disappointing monsoon season and massive power outages in August.

  January 03, 2013

Economy:

• Background

  India: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	1,220	Population growth	1.2
  GDP (US$ bn; market exchange rate)	1,872	Real GDP growth	5.9
  GDP (US$ bn; purchasing power parity)	4,835	Real domestic demand growth	5.4
  GDP per head (US$; market exchange rate)	1,535	Inflation	8.1
  GDP per head (US$; purchasing power parity)	3,963	Current-account balance (% of GDP)	-3.2
  Exchange rate (av) Rs:US$	53.4b	FDI inflows (% of GDP)	2.2
  a Economist Intelligence Unit estimates. b Actual.

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  Background: India gained independence in 1947, after two centuries of British colonial rule. Partition at the same time created the state of Pakistan, with which India has fought three wars, two over the disputed territory of Kashmir. India is the second most populous country in the world, with more than 1.2bn people in 2010. Its economy is the 11th-largest in the world measured in nominal US dollars, but it is the third-largest when measured at purchasing power parity exchange rates. The large and inefficient public sector co-exists with a sizeable and diversified private sector.

  Political structure: India has been a democracy since independence. The growing importance of regional parties has made coalition government the norm at federal level. Democratic procedures are, on the whole, respected. The prime minister is the leader of the government, requiring the support of a majority in parliament. The president is the head of state, and, although limited in executive power, can influence the formation of governments at both state and national levels when no party has gained an outright majority. The judiciary is formally independent and is becoming increasingly assertive.

  Policy issues: India emerged from the 2009 global recession in better shape than most countries in Asia. However, the progress made in the boom years of the mid-2000s on cutting the fiscal deficit has been reversed, and the government needs to promote market-friendly policies. It will also need to make hard decisions on raising taxes. The return of rapid inflation is a major risk to macroeconomic stability.

  Taxation: The top rate of both personal income tax and corporation tax for Indian companies is 30%. The corporation tax rate for foreign companies is 40%. However, a complex system of exemptions reduces the effective tax rate for Indian firms to less than 20%. All companies pay a 10% tax on distributed profits. Customs duties have been lowered substantially but remain high by international standards. The budget for fiscal year 2012/13 (April-March) included a proposal to amend the Income Tax Act to facilitate the taxation of crossborder acquisitions.

  Foreign trade: India's trade deficit (in balance-of-payments terms) widened to US$168bn in 2011, from US$132bn in 2010, as both exports and imports recovered sharply following the 2008-09 global financial crisis. Exports increased by 36% in 2011, to US$307bn, while imports rose by 33% to US$475bn.

  Major exports 2011/12a	% of total	Major imports 2011/12a	% of total
  Engineering goods	22.0	Petroleum & petroleum products	31.7
  Petroleum products	18.3	Gold & silver	12.5
  Gems & jewellery	15.4	Electronic goods	6.7
  Textiles & textile products	9.2	Non-electrical machinery	6.2
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  UAE	12.6	China	11.0
  US	11.0	UAE	7.6
  China	6.1	Saudi Arabia	5.3
  Singapore	5.2	US	4.6
  a Fiscal year (April-March).

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  March 06, 2013

• Structure

  India: Economic structure

  Data and charts: Annual trends charts

  
  

  

  January 03, 2013

• Outlook

  India: Country outlook

  India: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The embattled Indian National Congress-led United Progressive Alliance (UPA) coalition government is being swamped by a series of high-profile corruption scandals. Moreover, Congress's bias towards prioritising its political survival over good government in the past year has resulted in policy paralysis. In September, in an attempt to respond to its critics and reverse India's economic slowdown, the government unveiled a series of long-awaited economic reforms. The political fallout from the introduction of these measures was immediate, with one of the coalition's key parties, the Trinamool Congress, withdrawing its 19 members of parliament (MPs) from the ruling coalition in protest. This has left the UPA five seats short of a majority in the Lok Sabha (the lower house of parliament). Yet the government is unlikely to be in imminent danger, as it has confidence-and-supply arrangements with two regional parties, the Bahujan Samaj Party (BSP) and the Samajwadi Party (SP), which have 43 MPs between them.

  ELECTION WATCH: The next general election is due by May 2014. Although the government's waning popularity and lack of a working majority in parliament have raised the possibility of an early poll, we expect the UPA coalition to complete its term. This is largely because the opposition is weak and divided and is therefore in no position to mount a strong challenge. Given the growing strength of regional and caste-based parties in India, the 2014 election is certain to return another coalition government, which is likely to be led by either Congress or the BJP.

  INTERNATIONAL RELATIONS: In the past year relations between India and Pakistan have experienced a slight thaw, with modest progress being made on the liberalisation of the movement of people and goods across the border. However, domestic political concerns will continue to preoccupy leaders in both countries, harming prospects for compromise. Crossborder terrorism and the dispute over Kashmir (which both India and Pakistan administer in part but claim in full) will remain central issues in relations between the two countries. India is expected to play an increasingly important role in Afghanistan, particularly following the withdrawal of international forces from that country in 2014. The ongoing deepening of ties between India and Afghanistan is perceived by many Pakistanis as a threat to their country, raising the possibility that some elements in Pakistan may seek to destabilise India. However, Indo-Pakistani relations are expected to remain broadly stable, with no outbreak of hostilities, but no significant breakthroughs either.

  POLICY TRENDS: Efforts to implement structural economic reform will continue to be hindered by the government's lack of a reliable parliamentary majority in the period preceding the next general election, which must be held by May 2014. After several false starts, the government announced a series of reforms last September aimed at tackling India's burgeoning fiscal deficit and creating new jobs. These include the raising of administered fuel prices and the liberalisation of restrictions on foreign investment in leading sectors. However, priority will also be given to populist measures as the general election approaches. Even in the event that the BJP (which is considered to be more business-friendly than Congress) forms the next coalition government, the pace of reform in 2014-17 will be slowed by coalition politics and opposition from vested interests.

  ECONOMIC GROWTH: Real economic growth (on an expenditure basis) has been disappointing so far in 2012/13: in the first two quarters of the fiscal year (April-March) real GDP expansion averaged 3.4% year on year. A slowdown in growth in private consumption (which accounts for more than one-half of nominal GDP) is particularly worrying: high-frequency data, including figures for vehicle sales and retail sales, indicate that private consumption growth is likely to remain weak during the remainder of this year. As a result, we have lowered our forecast for real GDP growth in 2012/13 to 5.4%, from 5.8% previously. This will mark a significant slowdown from the growth rate of 6.9% recorded in the previous year. Growth in private consumption is forecast to decelerate from 5.5% in 2011/12 to 4.1% in 2012/13. Weak business and investor confidence will limit investment growth, which will slow to 4.4% in 2012/13, from 5.6% in the previous year. India is better insulated from international trends than many other emerging-market economies, but weak demand in the EU will continue to hamper the country's export growth and serve as an additional constraint on investor enthusiasm.

  INFLATION: Despite a slight easing of wholesale prices in November 2012 (when inflation slowed to 7.2% year on year), consumer price inflation, at 9.9% that month, remains elevated. The weakness of the rupee, the government's persistent fiscal deficit and supply-side shortages will continue to place upward pressure on prices despite the slowdown in economic expansion. The government will also need to address its burgeoning subsidy bill (for food and fuel) in the near term, and its efforts in this regard could push up food and fuel costs. The food component carries a weighting of around one-half in the consumer price index (and around one-quarter in the wholesale price index), meaning that food price rises will remain a crucial determinant of inflation in 2013-17. Some of these factors will moderate in 2013, and the average rate of consumer price inflation will consequently slow to 8.2%, from an estimated 9.2% in 2012. Wholesale price inflation will prove more stubborn, at 7.3% on average in 2013, compared with an estimated 7.6% in the previous year. In 2014-17 we expect a further slight moderation in the rate of inflation, with wholesale prices increasing by 6.9% a year on average and consumer price rises averaging 7.5% annually. However, any surge in international oil prices or a failure of the monsoon in India (which would reduce food supplies and thus push up food prices) could cause inflation to exceed our forecasts.

  EXCHANGE RATES: After depreciating by an estimated 12.5% in 2012 on the back of widening fiscal and trade deficits, the rupee is forecast to strengthen slightly during the forecast period, from an estimated average of Rs53.3:US$1 in 2012 to Rs48:US$1 in 2017. The rise in the currency's value will be driven primarily by strong inflows of foreign investment, attracted by India's bright economic prospects. The current-account deficit is not expected to pose a threat to the rupee, as it is forecast to average a modest 2.7% of GDP in 2013-17. Given the expected relatively rapid rate of price increases in the forecast period, the rupee's nominal strengthening will represent a substantial appreciation in real terms, amounting to 7.4% a year over the next five years. Our forecast is thus subject to downside risks: portfolio investment flows remain inherently volatile, inflation could surge, or the government could suffer a fiscal crisis. Any of these developments could trigger a depreciation of the rupee.

  EXTERNAL SECTOR: The current-account deficit, which is estimated to have reached the equivalent of 4.2% of GDP in 2012, is forecast to narrow steadily in the forecast period, to stand at 2.2% in 2017. The improvement will be driven by rapid growth in nominal GDP. India will continue to suck in merchandise imports, with growth in imports forecast to average 14.1% a year in 2013-17. Exports are forecast to rise even faster, at 17.5% a year. However, given the substantially higher base for imports, the merchandise trade deficit is forecast to widen to US$289bn in 2017, from an estimated US$197bn in 2012. Services exports will retain their vital role in external trade, as information technology and business-process outsourcing continue to lure Western firms to India. Services exports are projected to record average annual growth of 12.7% in 2013-17, pushing up the services surplus to US$113bn by 2017, from an estimated US$68bn in 2012. The income deficit, which is small at present, will widen steadily, to reach US$35bn by 2017, reflecting an increase in the repatriated profits of foreign companies operating in India. The current transfers surplus will rise over the forecast period, to reach US$109bn in 2017, owing to strong growth in remittances from Indian workers overseas.

  January 07, 2013

• Forecast

  India: Country forecast summary

  Country forecast overview: Highlights

  • With little over a year left before the current parliamentary term ends in May 2014, the embattled Indian National Congress-led United Progressive Alliance (UPA) coalition government is keen to overturn the perception that it is corrupt and inept. Several leading politicians from the ruling coalition have been accused of being involved in a series of high-profile corruption scandals over the past two years, which has undermined the UPA's standing.
  • The administration has attempted to respond to critics by undertaking a series of modest economic reforms since September 2012. These include measures to address the administration's massive subsidy bill and open up more sectors of the economy to foreign investment.
  • The next election is likely to return another coalition government, led by either the main opposition Bharatiya Janata Party (BJP) or Congress. Regardless of which party heads the next coalition government, it will need to make compromises to secure the support of regional and caste-based parties.
  • Further progress on structural economic reform will be limited in the run-up to the next general election. The BJP is considered more business-friendly among the two main political parties. However, even in the event that the BJP heads the next coalition government, the pace of reform in 2014-17 will be tempered by coalition politics and opposition from vested interests.
  • The Economist Intelligence Unit estimates that real GDP growth (on an expenditure basis) slowed to 5.2% in fiscal year 2012/13 (April-March). The economy will expand at an average rate of 7.2% a year in 2013/14-2017/18, driven by private consumption and investment.
  • A good winter harvest in 2012 and an easing of global oil prices will help to contain price pressures in the near term. However, the persistent fiscal deficit and supply-side shortages will continue to put upward pressure on prices in 2013-17, with consumer price inflation expected to average 7.5% a year in the period.
  • We have revised our estimates for the current-account deficit in the light of new data, and now expect the shortfall to have widened to the equivalent of 4.8% of GDP in 2012-the widest deficit ever recorded in India-compared with 4.4% previously. However, it is forecast to narrow steadily in the forecast period, to stand at 2.5% of GDP in 2017, on the back of a growing surplus on the services and current transfers accounts.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%; fiscal years beginning Apr 1st)	5.2	6.5	7.3	7.3	7.5	7.5
  Consumer price inflation (av; %)	9.3	8.8	8.0	7.0	6.6	7.1
  Budget balance (% of GDP; fiscal years beginning Apr 1st)	-5.4	-5.0	-4.5	-4.2	-4.0	-3.8
  Current-account balance (% of GDP)	-4.8	-4.1	-3.4	-3.0	-2.7	-2.5
  Lending rate (av; %)	10.6	9.7	9.1	9.0	8.8	8.8
  Exchange rate Rs:US$ (av)	53.4	52.8	50.9	49.7	48.3	48.0
  Exchange rate Rs:¥100 (av)	66.8	56.9	53.9	51.6	49.6	49.7

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  March 06, 2013

View detailed map

Country Briefing

Land area

3,287,263 sq km (including Indian-administered Kashmir); of the total, 57% is agricultural land and 16% is forest area

Population

1.21bn (March 2011; provisional estimate from 2011 census)

Main towns

Population in millions of metropolitan areas/regions, 2011 census:

 New Delhi: 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, 26-41°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 national language and the primary tongue of 30% of the population. There are 14 other official languages: Bengali, Telugu, Marathi, Tamil, Urdu, Gujarati, Malayalam, Kannada, Oriya, Punjabi, Assamese, Kashmiri, Sindhi and Sanskrit. English is widespread in business circles and as a second language

Religions

Hindu (80.5% in 2001 census); Muslim (13.4%); Christian (2.3%); Sikh (1.9%); Buddhist (0.8%); 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 2011: Rs46.7: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

January 03, 2013