India Economic Forecast

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The booming economy is likely to keep the United Progressive Alliance (UPA) government, led by the Indian National Congress, in power in 2007-08. The prime minister, Manmohan Singh, will continue to push for economic reforms but will be constrained by the practicalities of governing on a coalition basis. The outcome of the next general election, which must be held by May 2009, is likely to be another coalition government. Monetary policy will continue to be tightened during 2007, but will be
eased gradually thereafter. Real GDP growth is forecast to remain very strong during the forecast period, averaging 8.3% in fiscal year 2007/08 (April-March) and 8% in 2008/09. Inflationary pressures will be difficult to control. Strong domestic demand will lead to a significant widening of the merchandise trade deficit over the forecast period, but surpluses on the services and transfers accounts will limit the current-account deficit to less than 3% of GDP in 2007-08.

Key changes from last update


Political outlook

The success of the main opposition Bharatiya Janata Party in state elections in Uttar Pradesh and Uttaranchal in February shows that it could be a force to be reckoned with at the next general election.

Economic policy outlook

The budget for 2007/08, announced on February 28th, includes some big increases in expenditure at the same time as projecting a reduction in the fiscal deficit to 3.4% of GDP (compared with an estimated 3.7% in 2006/07). The government's concern over the sharp rise in inflation was also evident in the budget, as it is almost inconceivable that Congress could secure another five-year term at the next election unless it succeeds in bringing inflation under control.
Economic forecast

New figures released by the Central Statistical Organisation have led the Economist Intelligence Unit to revise up its estimate of real GDP growth in 2006/07 to 9.2% (from 8.8% previously). In addition, substantial acquisition activity has led us to raise our forecast for both inbound and outbound direct investment in the forecast period.