India under fire

by: Maritza Cabezas

Authorities in India have been taking a flurry of measures to reduce the risks of a balance of payments crisis. Measures to reduce the current account deficit, however, are no longer sufficient to reverse market sentiment and it is becoming more urgent to remove the structural impediments to economic growth. As a result, fiscal correction has now become critical in combination with further measures to encourage domestic investment. India will enjoy stronger external demand in the coming years, but it will have to show in the run-up to its elections of May 2014 that its politicians are committed to supporting the economy. India still has a bumpy road ahead. Over the coming months, the central bank will likely continue to try to calibrate growth without fanning inflationary risks. We maintain our forecast of 5.5% GDP growth in 2013 as we assume that authorities will take the necessary decisions to restore confidence even if it’s at the last minute.