QNB Group has published its India Economic Insight 2014. The report examined recent developments and the outlook for the Indian economy and the potentially positive impact of the Premier Narendra Modi administration’s reform agenda.
According to the report, the implementation of Modi’s reform agenda is expected to unleash India’s growth potential; real GDP growth is forecast to accelerate to 6.3 percent in 2015/16 and 6.8 percent in 2016/17 as reforms start to pay dividends
The Modi administration has identified a number of priority areas for reforms including phasing out food and energy subsidies; easing land acquisition laws; reviving the power sector; introducing a uniform federal sales tax and reforming the labor market.
The majority of the reforms are projected to be implemented during the 2015/16 budget, thus starting to pay dividends over the next two years by increasing investments in the economy.
CPI inflation is forecast to reach the target set by the Reserve Bank of India (RBI) of 6.0 percent by January 2016 on continued tight monetary policy and favorable external conditions.
Labor market reforms are expected to reduce inflation by increasing labor force participation and lowering wage inflationary pressures.
Falling international oil prices and a good monsoon season are likely to moderate energy and food price inflation (comprising half of the CPI basket) in the short term.
The current account deficit is projected to decline to 1.1 percent of GDP by 2016/17 on further rupee depreciation and tighter fiscal policy.
The implementation of reforms is expected to attract additional foreign investments, implying that the financial account is likely to enjoy a healthy surplus.
The accumulation of international reserves is projected to rise to 7.9 months of import cover by end-March 2017, supported by smaller current account deficits and larger net capital inflows.
Double-digit growth in assets, loans and deposits is expected to continue at least until 2016/17, reflecting further banking penetration, higher economic activity and reduced corporate deleveraging.
Lending growth is expected to rebound and NPLs to fall in 2016/17 as structural reforms begin to materialize and banks’ balance sheets are cleaned up
Deposit are expected to continue growing robustly, despite the slowdown in inflation driven by a high savings rate and the government’s financial inclusion initiative
Other recent QNB Economic Insight reports include China, Indonesia, Jordan, Kingdom of Saudi Arabia, Kuwait, Oman, Qatar and UAE are available on the QNB Group website.
QNB Group operates in more than 26 countries in Asia, Europe, the Middle East and North Africa and its economic reports leverage its knowledge of these markets to provided added value for its clients and counterparties.
India labor market reforms likely to reduce inflation
