India Economic Update – February 2012

India accounts for around 5% of exports from Australia and 2% from New Zealand, mainly comprising a narrow range of […]

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  • India accounts for around 5% of exports from Australia and 2% from New Zealand, mainly comprising a narrow range of commodities.  After growing strongly since 2000, shipment values from Australia fell in 2011.  India is one of the biggest Asian locations for Australian bank lending with around $US6½ Billion outstanding in the latter half of 2011
  • After years of exceptionally rapid growth, 2011 has been a much tougher year for the Indian economy.  Growth exceeded 9% in 2006 and 2007 and slowed to 7¾% in the following 3 years.  After hoping in early 2011 that growth could accelerate back to 9%, the Indian agencies are now cutting their estimates for 2011/12 to around 7%. The Rupee has fallen heavily.
  • The slowing in growth reflects a combination of slower global activity and a range of domestic factors.  Stubbornly high inflation, high interest rates and concerns about the slow pace of economic reform have eroded business investment.
  • Previous growth expectations were probably too optimistic – India has lots of advantages (very high saving and investment ratios, a high ratio of working age population to dependants, careful management of external financial flows) but it faces major challenges too (a complex political system that makes economic reform difficult, infrastructure problems and a web of regulation that makes doing business complicated).
  • We expect the slowdown in Indian expansion to continue (taking growth down to around 6¾% in 2012) but the country will still remain one of the fastest growing economies and a key driver of the world economy. The lower Rupee and eventual interest rate cuts should then take growth back to 7½% in 2013.

For further analysis download the full report.