India Economic Forecast
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After nearly a decade of rapid GDP growth, peaking at 11.228 percent in 2010, India’s economy has slowed significantly – plagued by stalled reforms, huge corruption scandals and bureaucratic inaction. In 2012, India’s GDP growth rate (constant prices, national currency) was just 3.986 percent, below the 5.5 percent estimate earlier in the year as well as a revised 4.9 percent target forecasted in October 2012.
After nearly a decade of rapid GDP growth, peaking at 11.228 percent in 2010, India’s economy has slowed significantly – plagued by stalled reforms, huge corruption scandals and bureaucratic inaction. In 2012, India’s GDP growth rate (constant prices, national currency) was just 3.986 percent, below the 5.5 percent estimate earlier in the year as well as a revised 4.9 percent target forecasted in October 2012.
The IMF in April also lowered its forecast for India’s economic growth in 2013 to 5.676 percent from its January estimate of 5.9 percent. On the bright side, the IMF did say that India’s economic slowdown appears to have bottomed out. It expects the government’s recent reform measures (including reducing fuel subsidies, easing foreign investment restrictions in retail and civil aviation, and setting up a ministerial panel to fast-track industrial projects), improving external demand and a better monsoon season to boost economic activity. This is reflected in the IMF’s growth forecasts, predicting that GDP growth rates will gradually pick up over the next five years from 6.23 percent in 2014 to 6.965 percent in 2018.
Nevertheless, the Indian economy still lacks momentum in infrastructure and industrial development, necessary to revive investors’ confidence to boost growth. Furthermore, despite the fact that the rupee has depreciated by nearly 25 percent, India’s current account deficit is growing, and inflation remains persistently high.
Indian Prime Minister Manmohan Singh has claimed that the country’s economic slowdown is cyclical and temporary and that pessimism is unwarranted. But the IMF has warned policymakers not to attribute too much of the recent economic downturn to cyclical rather than structural factors.
“The issue is broader and most obvious in economies where supply factors, such as infrastructure or labour-market bottlenecks, and domestic policy factors, such as policy uncertainty and regulatory obstacles, have contributed to the recent stalling of investment,” it said.
Table of Contents
India’s GDP Forecast
India is the 10th largest economy in the world according to GDP (current prices, US dollars) and the 4th largest by GDP (PPP). In 2012, India’s GDP (current prices) was $1.824 trillion and its GDP (PPP) was $4.684 trillion.
In 2013, India’s GDP (PPP) is expected to grow to $5.032 trillion. This will allow it to overtake Japan as the 3rd largest economy in the world by GDP (PPP), but its nominal GDP will only see a slight increase to $1.973 trillion.
Nevertheless, with the economic slowdown expected to bottom out soon, India’s growth is expected to pick up, allowing the nation to become the 9th largest economy in the world by 2018, in terms of GDP (current prices, US dollars). In that year, India’s GDP (current prices, US dollars) is forecasted to be $2.976 trillion and its GDP (PPP) will be $7.718 trillion.
Similarly, slow progress is expected to be made for India’s GDP (PPP) per capita. In 2012, Indians were the 131st richest people in the world with a GDP (PPP) per capita of $3,829.70. In 2013, the figure will climb by 6.02 percent to $4,060.22 – 130th in the world – and by 2018, India’s GDP (PPP) per capita is forecasted to reach $5,833.59 – 129th spot. In comparison, the expected average GDP (PPP) per capita for emerging and developing countries in 2018 is $10,291.63.
India’s Unemployment Forecast
Unemployment figures for India are notoriously unreliable given the difficulty in collecting data, the vast informal economy and the weak definition by the government towards the statistic. From 1983 until 2011, India’s unemployment rate, according to government surveys, averaged 7.6 percent – reaching an all time high of 9.4 percent in 2009 and a record low of 3.8 Percent in 2011.
Analysts say these figures are grossly understated, as most of the surveys do not reveal the rising “underemployment” – those who have given up looking for work or are part-timers seeking full-time posts – in the country. Additionally, the nature of the informal sector greatly distorts the unemployment figure. Reported self-employment accounts for more than 60 percent of the officially employed population of India. Casual workers, who get jobs only at times and remain unpaid when they don’t have work, constitute 30 percent of the workforce, while only 10 percent are regular employees.
Nonetheless, there are other indicators pointing to a worsening unemployment situation in India. For instance, given India’s high population growth rate, about 10 to 12 million jobs should be created each year to maintain employment/unemployment rates. But between 2005 and 2010, fewer than 3 million new jobs were added to the economy. This suggests that unemployment figures should be rising rapidly, unless millions of Indians are giving up on looking for a job each year.
India’s Inflation Rate & Current Account Balance Forecast
Following the 2008 global financial crisis, inflation rates (average consumer price change) in India rose quickly from 6.372 percent in 2007 to 10.882 percent in 2009. Inflation peaked at 11.989 percent in 2010, though the figure has since dropped to 9.312 percent in 2012.
However, inflation (average consumer price change) is expected to climb again to 10.816 percent in 2013, due to several fiscal reforms. The government last September removed some fuel subsidies for its citizens to improve its weak financial health, while weak consumer demand is also starting to feed into inflation. On the other hand, lower commodity prices and weak industrial activity may ease India’s inflation figure.
India’s inflation is expected to be moderate-high over the next five years after. In 2014, inflation (average consumer price change) is expected to drop slightly to 10.71 percent, before seeing bigger drops from 2015 to 2018. By 2018, inflation is expected to be at 6.677 percent.
Meanwhile, India’s current account deficit has grown worryingly high. In 2012, India had the second highest current account deficit in the world at $93.304 billion – an increase from just $62.756 billion a year before. The rapid increase has been down mainly to a surge in demand for oil and gold, though exports have weakened during the period as well.
Although the government has pledged to reduce the deficit “over time” and ensure that it is “financed safely . . . though sufficient foreign inflows,” India risks a sudden stop or reversal of capital flows, jeopardising their macro-financial stability. The current account deficit is expected to increase even further over the next five years to $97.617 billion in 2013 – and $100.858 billion in 2018.
Read more about India’s economy, including industry information, featured analysis and trade statistics below.
