Ima India Asia Forecast 2009 Q1 (Outlooks & India Only)

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This report is issued by IMA Asia or a member of the AXP Network to clients only. It is for
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and forecasts are subject to change without notice and may differ from analysis and forecasts
by our country network members as a result of using different assumptions and criteria.
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distribution or web loading without the consent of IMA Asia.
Asia Forecast Book
Q1, 2009
Forecasts to 2015
© IMA Asia
Editor: Richard Martin, richard.martin@imaasia.com
Charts & Tables: Larnie Muirhead, larnie.muirhead@imaasia.com
For further discussions on business conditions in India please contact:
Research for Strategy
IMA Asia’s analysis is produced with the assistance of IMA India and its clients.
Please contact them for further information on Indian markets, forecasts and
business conditions.
Adit Jain, Chairman, IMA India
Email: aditjain@ima-india.com
Tel: 91 124 459 1251 • Fax: 91 124 459 1250 • www.ima-india.com
I M A
Global & US Outlook
Regional Outlook
India

Asia Strategic Forecast Asia Forecast Book Q1 2009
© IMA Asia Pty Ltd www.imaasia.com i
Table of contents
Page
Global & US Outlook 1
Regional Outlook 5
India 7

© IMA Asia Pty Ltd www.imaasia.com 1
Global & US Charts
1. Global & advanced economy growth
The world faces 3 years of weakness. Advanced economies
contract in 2009. Emerging markets drive growth from 2010.
2. Global consumers retreat
Consumer demand growth will weaken for 3-4 years. 2009 will
see the first contraction since World War Two.
World GDP Real Growth, %
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
World Advanced EconomiesIMA Asia
World Consumer GDP, %
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
1980
1985
1990
1995
2000
2005
2010
2015
18
20
22
24
26
28
30
World Real Growth (LHS) Asia Share (RHS)IMA Asia
3. A big fall for global fixed investment in 2009
A demand downturn and continued tight lending conditions will
weaken fixed investment for two to three years.
4. A global manufacturing shakeout in 2009
Increased globalisation and a demand collapse will force faster
rationalisation. Asia’s production role will grow quickly.
World Fixed Investment GDP, %
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1980
1985
1990
1995
2000
2005
2010
2015
20
25
30
35
40
45
World Manufacturing GDP, %
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1980
1985
1990
1995
2000
2005
2010
2015
0
5
10
15
20
25
30
35
40
45
50
5. US Consumers
US households face 3-4 years of deleveraging with lower
spending growth and higher savings + debt pay down.
6. US fixed investment
The fall in residential investment should ease by end 2009 but
corporate fixed investment will likely drop 8% in 2009.
US: Consumer Spending, %
-2
0
2
4
6
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
68.0
69.0
70.0
71.0
72.0
73.0
Real Growth (LHS) GDP Share (RHS)IMA Asia
US: Fixed Investment, %
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
16.0
17.0
18.0
19.0
20.0
21.0
Real Growth (LHS) GDP Share (RHS)IMA Asia
7. The US current account balance
The deficit grew from ‘98 as the US$ climbed. It is now falling
and will continue to drop provided the US$ doesn’t soar again.
8. The US dollar
The US$ is volatile but weak in ’09. From 2010, watch for a
mild recovery, but not to the heights of the late 1990s.
USA - Balance of Payments, % of GDP
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Trade bal. Current account bal.IMA Asia
US$ on Trade Weighted Index & Euro
60
70
80
90
100
110
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
0.50
0.75
1.00
1.25
1.50
1.75
US$ TWI Euro 1=US$IMA Asia
TWI US$

Global & US Outlook
Rebalancing global demand
Since 2006, the IMF has warned that a correction in the “global imbalance” lay ahead and that it would occur either
gradually, with the help of changes to economic policies, or abruptly, as happened in the 1997 Asia Crisis. The
global imbalance is the recycling of excess savings from East Asia and the Middle East (reflected in large account
surpluses) into the US (with a large current account deficit and rapid growth in government and household debt to
maintain consumption and investment levels). In 2008, the US financial crisis pushed the global economy into a
rapid correction. The bad lending and regulatory practices that triggered the US crisis closely resemble those in
East Asia a decade earlier. The US now faces a similar economic correction, but thankfully without a currency
collapse or capital flight. Its recession, as a result, will be less abrupt and shattering than Asia’s. However, the scale
of the reduction in growth for consumer spending and fixed investment over the next four years should not be
mistaken. Provided the US government moves quickly on appropriate reforms, a strong and restructured economy
should emerge by the end of President Obama’s first term.
2009 - a gap year for some businesses
The problem for the world in 2009 is that while US demand has collapsed, an abrupt global rebalancing does not
mean an immediate lift in Asian demand. Asia has stronger national, government, corporate and household balance
sheets but it will not use these to lift spending in 2009, although they should soften the downturn. If anything, Asian
consumers and corporates are cutting spending in the face of global uncertainty and a tough borrowing environment,
which will exacerbate the 2009 global recession. The global upturn in 2010 will be weak, but Asia, with better
balance sheets, should lead it and over 2010-15 the rebalancing of global demand will emerge on Asia’s side of the
Pacific with a steady lift in consumption and investment alongside a reduction in high levels of savings (see global
charts 2 and 3). As in the US, much will depend on appropriate policies being implemented by Asian governments.
Without any strong driver for global demand, 2009 will be marked by uncertainty, with conflicting signals on
underlying demand until new trends are established in 2010. Some firms, notably acquirers willing to gamble on
future put unproven trends, thrive in this environment. But many will find it simply delays growth plans by a year.
A global shakeout in manufacturing
The next three years will be particularly challenging for manufacturing as production is brought back into line with
demand. The increasing globalisation of manufacturing has been one of the major forces shaping the world for 50
years and we do not expect a retreat into protectionism, although this is a risk that should be considered. When Asia
confronted its crisis 11 years ago its manufacturers had the benefit of strong demand in other regions (thus the
almost overnight creation of Thailand’s automotive export industry). In 2009, by contrast, manufacturers face a
global contraction in demand, which will force global goods prices down (raising the possibility of deflation in many
markets) and force global rationalisation. The trend for the last 28 years has been for Asia to win market share in
each wave of rationalisation and we expect this to continue over 2009-15 (see global chart 4).
Asia needs to reform domestic markets and adjust to lower growth
The long-term forecasts in this report show a marked reduction is Asia’s trend growth, even though it will benefit from
the global rationalisation of manufacturing and global rebalancing. Two factors are driving this. The first is an
ageing population, with much slower workforce growth and rising dependency curves. The second is that for most of
Asia the quick gains from rapid growth in export manufacturing are over. In much of Asia this is the one sector
where productivity growth soared over the last 30 years, which drove strong growth in household incomes and GDP.
Yet if Asia is to get an improvement in growth from 2010 it must push reforms that lift productivity in its domestic
market. Outside Australia, New Zealand and Singapore there are few signs that governments understand this
challenge or that local firms are ready to accept it. This is the crux of Asia’s long-term outlook. Clint Laurent of
Global Demographics will join our March 2009 forecasting sessions around Asia to help focus on this issue.
The current run-down in global inventory
The current inventory reduction, triggered by sliding demand and CFO’s scrambling to conserve cash, is
unprecedented in scale and speed. It is likely to run through much of Q1’09 and to produce two consecutive
quarters of contraction in global GDP. An inventory bounce – with a spurt of new orders - also lies ahead, probably
in Q2’09. This will make it hard to use data until at least Q3’09 to get a fix on medium-term trends. Don’t mistake
the current collapse in global industrial production and a brief Q2’09 rebound as indicative of trends for 2H’09.
Currencies
Global charts 7 and 8 show the relationship between the US dollar’s value and the US current account deficit. The
following country forecasts for Asian markets assume volatile and uncertain global currency markets through 2009
followed by a gradual strengthening of the US$ on its trade weighted index and the Euro. Provided the US$
recovery is modest, the US current account deficit should continue to retreat and the US economy to rebalance. We
expect some Asian currencies to edge up on the US$ over this period, although the annual gains will be small,
particularly as the greenback will itself be edging up. This will accentuate global rebalancing towards the end of
2010-15, particularly for markets like China.

Global & US – Forecast Data
FORECAST
2004 2005 2006 2007 2008 2009
GLOBAL ECONOMY
GDP global real growth, % 4.9 4.5 5.1 5.0 3.7 1.8
- Euro area, % 2.1 1.6 2.8 2.6 1.2 -0.7
- Asia/Pacific (14), % 5.0 4.5 5.2 5.6 3.4 1.3
- Asia/Pacific (13; ex-Japan), % 7.5 7.3 7.9 8.2 6.1 3.1
- Asean (6), % 6.5 5.7 6.0 6.5 4.7 2.0
GDP world, current value, US$ bn 37,048 41,677 45,022 48,665 54,585 62,054
- Asia/Pacific (14) share, % 26.9 25.6 25.4 26.3 26.8 23.6
- US share, % 31.5 29.8 29.3 28.4 26.5 23.0
- Euro area share, % 26.3 24.2 23.6 25.0 25.7 22.8
World Trade, volume growth, % 10.7 7.6 9.3 7.2 4.6 1.9
US ECONOMY
REAL GROWTH, %
GDP (Base Year 2000, MP) 3.6 2.9 2.8 2.0 1.2 -1.5
Personal consumption 3.6 3.0 3.0 2.8 1.8 -1.0
Government consumption 1.5 0.3 1.2 1.5 3.0 3.5
Gross fixed capital expenditure 6.2 5.8 2.3 -1.8 -1.9 -5.5
- Private residential 10.0 6.3 -7.1 -17.9 -24.0 -10.0
- Private equipment & software 7.4 9.3 7.2 1.7 1.0 -8.0
- Government 1.1 0.8 4.0 5.0 5.0 7.0
Exports 9.7 7.0 9.1 8.4 6.0 -7.5
Imports 11.3 5.9 6.0 2.2 -2.0 -3.0
SHARE OF GDP, %
Personal consumption 70.8 70.9 71.1 71.6 72.1 72.4
Gross fixed capital expenditure 19.3 19.8 19.7 19.0 18.4 17.7
- Private residential 5.2 5.4 4.9 3.9 3.0 2.7
- Private equipment & software 8.5 9.0 9.4 9.4 9.3 8.7
- Government 3.3 3.2 3.2 3.3 3.4 3.7
Exports 10.5 11.0 11.6 12.4 13.0 12.2
Imports 16.1 16.6 17.1 17.1 16.6 16.3
Net exports -5.6 -5.6 -5.5 -4.7 -3.6 -4.2
CURRENT PRICE DATA
GDP, US$ billions 11,686 12,422 13,178 13,808 14,479 14,283
GDP/capita, US$ 39,812 41,929 44,064 45,725 47,485 46,388
MARKET INDICATORS
US$ Trade Weighted Index 85.4 83.7 82.5 77.9 73.5 73.5
- % annual change -8.2 -1.9 -1.5 -5.6 -5.6 0.0
Yen to US$1 108 110 116 118 102 97
US$ to 1 Euro 1.24 1.24 1.26 1.37 1.48 1.48
Yuan to US$1 8.28 8.19 7.97 7.61 6.98 7.25
Population, yr avg, millions 294 296 299 302 305 308
- population growth rate, % 0.9 0.9 1.0 1.0 1.0 1.0
Manufacturing wage US$/hour 15.30 15.68 15.95 16.42 16.97 17.22
Inflation, CPI, % year avg 2.7 3.4 3.2 2.9 3.9 0.5
Federal Reserve rate at Dec., % 2.25 4.25 5.25 4.25 0.25 0.25
BALANCE OF PAYMENTS
Export growth, % 12.4 11.8 12.7 12.6 12.0 -7.0
Import growth, % 16.3 13.2 10.4 6.0 9.0 -10.0
Exports, fob US$ bn 1,147 1,283 1,446 1,628 1,824 1,696
Imports, cif US$ bn -1,764 -1,997 -2,204 -2,337 -2,547 -2,292
Trade Balance, US$bn -617 -714 -759 -709 -723 -596
Current account balance, US$bn -640 -755 -811 -739 -450 -639
- as a % of GDP -5.5 -6.1 -6.2 -5.3 -4.8 -4.5
Sources: CEIC, national statistics offices, IMF. Our accompanying Excel workbook has another 50 lines of data.

Global & US - Forecast Data
FORECAST
2010 2011 2012 2013 2014 2015
GLOBAL ECONOMY
GDP real growth, % 2.2 2.6 3.0 3.8 4.9 5.0
- Euro area, % 0.3 1.0 1.8 2.2 2.1 2.1
- Asia/Pacific (14) real growth 3.1 4.4 4.4 4.4 4.6 4.7
- Asia/Pacific (13; ex-Japan) 5.2 6.2 6.2 6.0 6.2 6.3
- Asean (6) 3.9 5.3 5.9 5.5 4.9 4.7
GDP current value, US$ bn 64,168 68,103 72,656 77,468 82,814 88,611
- Asia/Pacific (14) share, % 24.0 24.4 24.9 25.4 26.0 26.7
- US share, % 22.6 22.0 21.5 21.2 20.9 20.6
- Euro area share, % 22.9 22.5 22.1 21.7 21.4 21.0
World Trade, volume growth, % 2.6 3.5 5.0 6.5 8.0 7.5
US ECONOMY
REAL GROWTH, %
GDP (Base Year 2000, MP) 1.5 2.2 2.8 3.1 3.0 2.7
- Private residential -2.0 2.0 3.0 5.0 6.0 5.0
- Government 4.0 5.0 3.0 2.0 2.5 2.5
Exports -2.0 3.0 4.5 6.0 5.5 5.5
Imports 2.0 2.5 2.8 3.2 3.3 3.3
SHARE OF GDP, %
- Private residential 2.6 2.6 2.6 2.7 2.7 2.8
- Government 3.8 3.9 3.9 3.9 3.9 3.9
Exports 11.7 11.8 12.0 12.4 12.7 13.0
Imports 16.4 16.4 16.5 16.5 16.5 16.6
Net exports -4.6 -4.6 -4.4 -4.1 -3.8 -3.6
CURRENT PRICE DATA
GDP, US$ billions 14,530 14,976 15,630 16,460 17,334 18,225
GDP/capita, US$ 46,730 47,696 49,298 51,412 53,617 55,824
MARKET INDICATORS
US$ Trade Weighted Index 76.4 78.0 79.5 81.1 82.7 84.4
- % annual change 4.0 2.0 2.0 2.0 2.0 2.0
Yen to US$1 105 107 109 111 114 116
US$ to 1 Euro 1.44 1.40 1.37 1.33 1.30 1.27
Yuan to US$1 7.04 6.84 6.64 6.45 6.26 6.08
Population, yr avg, millions 311 314 317 320 323 326
- population growth rate, % 1.0 1.0 1.0 1.0 1.0 1.0
Manufacturing wage US$/hour 17.53 17.88 18.28 18.75 19.28 19.82
Inflation, CPI, % year avg 0.8 1.4 2.0 2.5 2.5 2.5
Federal Reserve rate at Dec., % 0.75 1.75 3.25 4.25 4.50 4.50
BALANCE OF PAYMENTS
Export growth, % -2.0 5.0 6.0 8.0 7.5 7.0
Import growth, % -5.0 2.0 3.5 5.0 5.5 5.0
Exports, fob US$ bn 1,662 1,745 1,850 1,998 2,148 2,298
Imports, cif US$ bn -2,178 -2,221 -2,299 -2,414 -2,547 -2,674
- as a % of GDP -3.8 -3.4 -3.1 -2.7 -2.5 -2.3
Sources: CEIC, national statistics offices, IMF. Our accompanying Excel workbook has another 50 lines of data.

Regional - Charts
1. China & India – moving down to 6% growth
Demographic factors (mainly in China) and the slow pace of
reform to domestic markets will pull growth down in 2010-15.
2. NICs & Asean
The outlook is mixed. Reforms could lift Vietnam, Indonesia &
Taiwan to higher growth. Growth slows for the rest.
GDP, Real Growth, %
0
2
4
6
8
10
12
14
1980-
85
1985-
90
1990-
95
1995-
00
2000-
05
2005-
10
2010-
15
China IndiaIMA Asia
GDP, Real Growth, %
0
2
4
6
8
10
12
14
1980-
85
1985-
90
1990-
95
1995-
00
2000-
05
2005-
10
2010-
15
NIC 4 Asean 5 (ex-Sing)IMA Asia
3. Export growth (US$ basis), %
Almost all of Asia faces an export contraction in 2009 with a
weak recovery in 2010.
4. Unemployment rate, %
Most of Asia had very low unemployment in 2008 but a sharp
rise is likely in 2009. China’s data likely masks reality.
Export Growth, US$ basis, %
-20
-10
0
10
20
30
Japan
China
HongKong
Taiwan
Korea
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
India
Australia
2008 2009 2010
IMA Asia
Unemployment Rate, %,
0
2
4
6
8
10
12
Japan
China
HongKong
Taiwan
Korea
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Australia
US
2008 2009 2010
IMA Asia
Note: NIC 4 = Korea, Taiwan, HK, Singapore. Asean 5 = Indonesia, Malaysia, Thailand, Philippines, Vietnam
An Overview of Asia’s Risk Outlook
With a sharp slowdown in global growth likely over the next 18 months it is important to prepare for instability in
markets that have higher risk profiles. The following table sets out our quick summary of the risk position in Asia’s
main markets. The ratings are moved by IMA Asia each quarter.
RED italic = higher risk rating than Q4’08 BLUE underscore = lower risk rating than Q4’08
POLITICS ECONOMIC OPERATING
Japan Medium Medium Low
China Low Medium Medium
Hong Kong Low Medium Low
Taiwan Low Low Low
Korea Medium Medium Low
Indonesia Medium Medium Medium
Malaysia Medium Low Low
Philippines Medium Medium Medium
Singapore Low Low Low
Thailand High Medium Medium
Vietnam Medium High Medium
India Medium Medium Medium
Australia Low Low Low

Asia Pacific management issues
Managing uncertainty in 2009
Two things stand out about 2009. The first is that the main scenario for this year is grim. The second is that
uncertainty over the coming year’s course is greater than at any time since the Y2K bubble. Scenario planning is
particularly useful for handling this challenge, forcing companies to work through the worst case, even though
managers are loath to abandon carefully crafted growth strategies. It also requires consideration of the unexpected,
in this case that things might work out better than anticipated. The speed and size of monetary and fiscal stimulus
being announced by governments and central banks is unprecedented and it may have a more positive impact on
economies sooner than the market expects. Such stimuli normally take 18 months to work but the indirect impact –
by lifting consumer and business sentiment from near record lows – may be quicker.
3 scenarios for 2009
1. The IMF view (40% chance at present)
The IMF’s November revision to the World Economic Outlook should be the baseline forecast (see
www.imf.org). This foresees that the world’s advanced economies will contract by 0.3% in 2009, their first
full year fall since the Second World War, before a mild recovery in 2010. Inflation will collapse to 1.4%
from 3.6% in 2008. A milder downturn is expected in Asia’s four newly industrialised economies (Korea,
Taiwan, HK and Singapore) with growth of 2.1% in 2009 from 3.9% in 2008, while developing Asia is
forecast to grow 7.1%. Overall world growth will drop to 2.2% in 2009 from 3.7% in 2008 and an unusually
strong 5%pa pace over 2004-07.
2. Worse than the IMF expects (50% chance at present)
Many now regard the IMF’s November forecast as far too optimistic. The latest data shows industrial
production contracting around the world and private investment being slashed. In this scenario advanced
economies contract by 2% in 2009 and barely grow in 2010. Asia’s trade-dependent NICs face a 2-4%
contraction and their developing neighbours drop to 3-4% growth (China at 5% and India at 3%). Deflation
becomes a reality in most countries by mid-2009 and may last into 2010. The forecasts in this issue of the
Asia Forecast Book are in this range.
3. Better than the IMF expects (10% chance at present)
While few expect it, a better outcome is possible. Consumers could be helped by big cuts to fuel and food
prices and lower interest rates. Monetary and fiscal stimulus may prove more effective than expected and
unemployment may not rise as high as feared. The main gain in this scenario is for advanced economies,
which would eke out 0.5% growth in 2009 with 2.0% in 2010. Growth for the NICs and developing Asia
would be as in scenario 1 for 2009, but with greater optimism over much stronger growth in 2010.
Managing a rise in consumer and corporate stress in Asia
Asia enters 2009 with remarkably low stress levels for most households (e.g. low unemployment and low credit card
delinquency), corporates (low bankruptcies or bond downgrades), banks (low non-performing loans), governments
(low net public debt) and nations (current account surpluses and high foreign exchange reserves). Almost all stress
levels will jump in the next few quarters, so companies should prepare for the impact this will have on customers and
suppliers. Asia’s large export manufacturing sector will be particularly hard hit and a jump in unemployment in this
sector is likely during the first quarter of 2009. This will have a big impact on consumer sentiment and on urban
household incomes, resulting in a sharp reduction in spending. However, households in most of the region are not
exposed to the deleveraging that has started in the US, so the downturn should not be as sharp or as prolonged.
The second area to watch is a rise in corporate stress, with the manufacturing sector again being the focal point in
1H’09. Since October 2008, export manufacturers have suffered dramatic falls in orders, compounded by difficulties
in obtaining trade finance. Many may be technically insolvent at present and reliant on pliable local banks to stay in
business. A fast rise in bad debts, non-payment, and bond defaults is likely over the next few quarters.
A special note on China. China’s data for tracking consumer and corporate stress is bad. An annual
unemployment number is available for urban areas only and this number ignores a large part of China’s floating
migrant workforce of some 140m. This group will be particularly hard hit by the slowdown in export manufacturing
and construction. China’s data on non-performing loans at banks is also very questionable. China may be forced to
acknowledge an explosion of bad loans to manufacturing, property and construction companies by the end of 2009.
Foreign companies with customers or suppliers in these sectors will have run into problems long before then.
Managing a rise in Asia’s risk profile
Asia’s risk profile has improved dramatically over the 11 years since the Asia Crisis. However, risk levels have
started rising in Japan, China, South Korea, Malaysia, the Philippines, Thailand, Vietnam, and India (see country
pages). As always, the worst case scenario to watch for in any country is a combination of rising political risk and
rising economic risk. At present, none of the 13 Asia Pacific countries covered by the Asia Forecast Book are rated
“high” for both economic and political risk. But this risk bears close watching and we will report on it in the monthly
Asia Pacific Executive Brief.

India - Charts
1. GDP & inflation in 2009 & 2010
A mild fall in local demand and a small export sector will help
limit the 2009 downturn in India.
2. GDP & inflation long term
India is unlikely to carry out reforms that would remove the
capacity constraints on growth above 6-7% over the long term.
INDIA: Real GDP & Inflation, %
0
2
4
6
8
10
00-01
01-02
02-03
03-04
04-05
05-06
06-07
07-08
08-09
09-10
10-11
GDP Real Inflation
FY from 1 April
IMA Asia
INDIA: GDP & Inflation Trends, %
5.4
6.2
5.1
5.8
7.0
7.7
6.3
0
2
4
6
8
10
12
80/81-
85/86
85/86-
90/91
90/91-
95/96
95/96-
00/01
00/01-
05/06
05/06-
10/11
10/11-
15/16
GDP Growth Inflation (CPI)IMA Asia
3. Consumers in 2009 & 2010
High interest rates and falling sentiment have led to weaker
growth in consumer demand.
4. Consumers long term
Strong population growth and the slow transformation of the
economy underpin a steady lift in household expenditure.
INDIA: Consumer Spending, real growth, %
0
2
4
6
8
10
00-01
01-02
02-03
03-04
04-05
05-06
06-07
07-08
08-09
09-10
10-11
2000-2007 % CAGR = 3.8%
IMA Asia
INDIA: Personal Consumption Trends
4.0
4.4
3.8
4.9
5.7 5.8 5.6
0
2
4
6
8
10
80/81-
85/86
85/86-
90/91
90/91-
95/96
95/96-
00/01
00/01-
05/06
05/06-
10/11
10/11-
15/16
50
55
60
65
70
75
Real growth Share of GDP
%share%growth
IMA Asia
5. Fixed investment in 2009 & 2010
India’s capital markets have been hit by the 2008 global
financial crisis. A recovery is likely after the 2009 elections.
6. Fixed investment long term
The rise in fixed investment over 30% of GDP is the single
biggest factor transforming India’s economy.
INDIA: Fixed Investment, %
0
4
8
12
16
20
00-01
01-02
02-03
03-04
04-05
05-06
06-07
07-08
08-09
09-10
10-11
IMA Asia
2000-07 % CAGR = 7.7%
INDIA: Fixed Investment Trends
5.3
7.7
6.4
5.3
12.7
12.1
8.6
0
4
8
12
16
80/81-
85/86
85/86-
90/91
90/91-
95/96
95/96-
00/01
00/01-
05/06
05/06-
10/11
10/11-
15/16
20
25
30
35
40
%share%growth
IMA Asia
7. Manufacturing long term
Over the next five years India will gain a foothold in global
export manufacturing with faster growth from 2011/12.
8. Construction long term
Red tape, public debt, and weak domestic capital markets will
keep construction growth well below potential (put at 10-12%).
INDIA: Manufacturing GDP, %
7.0
8.2
6.9
4.7
6.7 6.8
9.7
0
3
6
9
12
80/81-
85/86
85/86-
90/91
90/91-
95/96
95/96-
00/01
00/01-
05/06
05/06-
10/11
10/11-
15/16
%growth
10
12
14
16
18
%share
Real growth Share of GDPIMA Asia
INDIA: Construction GDP, %
2.5
6.8
3.5
6.6
11.2
7.8 8.0
0
4
8
12
16
80/81-
85/86
85/86-
90/91
90/91-
95/96
95/96-
00/01
00/01-
05/06
05/06-
10/11
10/11-
15/16
4
5
6
7
8
%share%real growth
IMA Asia

India - Outlook
Risks
Political Level
Rating Medium
Outlook Stable
Two factors will keep India’s political risk rating at “medium”. First, domestic politics
is highly fragmented, requiring very broad coalitions to form a federal government.
This increases the potential for governments to fall mid-term and leads to very slow
policy implementation often characterised by the lowest common denominator.
Second, geopolitical tensions with Pakistan have the potential to boil over and
undermine investment sentiment in both countries.
Economic
Rating Medium
Outlook Rising
India’s economy has overheated with surging domestic demand producing high
inflation, excessive salary rises, a big trade deficit, and overloaded infrastructure. Of
the two options for lowering risk – clamping down on demand or boosting capacity –
India can really only attempt the former. Foreign exchange reserves, which jumped
from US$42.9bn (9.2% of GDP) at the end FY2000/01 to $310bn (26.5% of GDP) at
the end of FY2007/08, fell rapidly from August 2008 and are likely to continue falling
for several years. This may worry investors and keep the Rupee weak.
Operating
Rating Medium
Outlook Stable
India’s operating environment is enormously frustrating with massive red tape,
corruption, poor utilities, and overloaded infrastructure. While companies can adjust
to these problems it will remain a drain on economic growth and corporate profits.
Outlook by sector
GDP % Growth
FY 00/01-07/08 7.6
2008/09 6.8
2009/10 6.0
10/11-15/16 6.3
After five years of growth in the 8-9%pa range GDP will slow to 6-7%. We’re
expecting a sharp drop in export volume growth to 3-5%pa over the next two years.
Growth in domestic demand will moderate as well, but will still be sufficient to sustain
6-7% GDP growth. A return to strong fixed investment, almost wholly from the private
sector, should lift GDP growth to 7-8%pa over 2010-15. The two main constraints
preventing growth from reaching China-like levels of 10%+ will be weak infrastructure
and weak productivity growth.
Consumer
FY 00/01-07/08 6.0
2008/09 5.0
2009/10 4.0
10/11-15/16 5.6
Real growth in consumer spending has steadily accelerated since the start of reforms
in the early 1990s. This essentially measures the transfer of workers out of low
value-added agriculture and state-owned businesses into higher value-added
services and manufacturing sectors, mostly in the private sector. This has lifted
annual growth from 4-5% in the 1990s to 6-7% in the current decade. A sharp fall in
sentiment, however, will weaken consumer demand this fiscal year and next year.
Investment
FY 00/01-07/08 13.5
2008/09 10.5
2009/10 7.0
10/11-15/16 8.6
Most indicators (bank lending etc) point to a sharp drop in real growth of fixed
investment from 15-16%pa over the last four years to 10-11% this fiscal year and
around 7% in 2009/10. A bigger drop in the growth rate is possible if foreign investor
confidence collapses over the next six months. Longer-term, however, the steady
rise in fixed investment’s share of GDP is the single most important factor pushing
India to higher sustainable levels of GDP growth.
Manufacturing
FY 00/01-07/08 7.8
2008/09 4.5
2009/10 3.0
10/11-15/16 9.7
By the September quarter of 2008, manufacturing real growth had slowed for six
quarters with the downward trend likely to continue well into 2009. Growth in the
larger, domestically-focused sector has cooled as interest rates have risen. The fast
emerging export sector maintained strong growth through to September 2008 but
growth collapsed in October. Manufacturing’s share of GDP is expected to lift from
around 15% today towards 16% by 2015. Manufacturing could grow even faster in
the following decade if India tackles the many barriers to export manufacturing.
Construction
FY 00/01-07/08 11.1
2008/09 7.0
2009/10 4.5
10/11-15/16 8.0
The construction sector has led India’s growth since the September quarter of 2000,
with compound real growth of 11.2%pa over the first five years of this decade. The
pace is expected to slow over the next year due to higher interest rates, a weak stock
market and a sharp fall in business sentiment. Longer-term, however, the sector will
benefit from the steady rise in fixed investment. However red tape, legal battles, and
shortages place a cap on sustained growth over 8% pa in the long term.
Government While the government has little scope to lift its spending over the next two years it is
likely to do so as it seeks re-election in May 2009 and attempts to cushion the
economy from the global financial crisis. Thereafter it will have to trim spending for
several years to prevent a blowout in the budget deficit as tax revenues fall.
Inflation &
interest rates
High inflation started to ebb in November and will fall quickly over the next year
opening the way to further interest rate cuts.
Currency After several years of strong appreciation the rupee is on track to fall some 8% this
fiscal year and to remain weak due to risk concerns for several years.

India – Forecast Data
FORECAST
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
REAL GROWTH, %
GDP (Market Prices, 1999-00) 8.3 9.2 9.7 8.7 6.8 6.0
Exports 28.1 14.8 18.9 6.4 5.0 3.0
Imports 16.0 45.6 24.5 6.4 4.0 -1.5
SHARES OF GDP, %
Exports 18.1 19.0 20.6 20.1 19.8 19.2
Imports 16.3 21.8 24.7 24.2 23.6 21.9
Net exports 1.7 -2.8 -4.2 -4.1 -3.8 -2.7
GDP (Factor Cost) real growth, % 7.5 9.3 9.6 8.7 6.8 6.0
Manufacturing real growth % 8.7 9.0 12.0 9.4 4.5 3.0
- share of GDP, % 15.1 15.1 15.4 15.5 15.2 14.7
Construction real growth % 16.1 16.5 12.0 9.6 7.0 4.5
- share of GDP, % 6.6 7.1 7.2 7.3 7.3 7.2
CURRENT PRICE DATA
GDP (MP) growth, % 14.3 13.7 15.8 13.2 14.3 13.0
GDP (MP) US$ billions 697 811 915 1,170 1,230 1,389
GDP (FC) Manufacturing, US$ bn 100 118 136 177 183 200
GDP (FC) Construction, US$ billions 47 60 71 91 98 110
GDP (MP)/capita US$ 636 730 810 1,019 1,056 1,177
MARKET INDICATORS
Exchange rate, yr avg., to US$1 45.2 44.1 45.3 40.1 43.6 43.6
Exchange rate, yr avg., to Euro 1 56.5 53.9 58.1 57.1 64.7 64.1
Exchange rate, yr avg., to Yuan 1 5.5 5.4 5.7 5.4 6.8 6.1
Population, millions + UN forecast 1,096 1,112 1,130 1,147 1,164 1,180
Inflation, WPI (93/94=100), % 6.5 4.4 5.4 4.6 6.5 5.0
Inflation, CPI, Urban non-manual, % 3.8 4.6 6.6 6.0 7.0 5.8
Mill worker earnings, mnth/Rs 79 84 87 110 112 118
- growth 7.0 6.2 4.1 26.4 1.2 6.0
- Hourly US$ estimate 0.39 0.41 0.43 0.55 0.55 0.59
RBI bank / Repo rate, year end, % 6.00 6.50 7.50 7.75 6.25 6.00
Industrial production index, % chg 8.4 8.2 11.6 6.6 3.5 3.0
BALANCE OF PAYMENTS
Export growth in Rs, % 23.5 28.3 24.4 11.6 18.0 3.0
Import growth in Rs, % 35.7 38.1 22.7 18.3 24.0 5.0
Exports, fob US$ bn 79 103 125 158 171 177
Imports, cif US$ bn 106 150 179 239 272 286
- as a % of GDP -0.4 -1.2 -1.1 -1.5 -1.8 -2.1
Foreign reserves, US$bn 142 152 199 310 230 222
- as a % of GDP 20.3 18.7 21.8 26.5 18.7 16.0
Foreign debt, US$ mn 133 138 170 221 253 301
- as a % of GDP 19.1 17.0 18.5 18.9 20.6 21.6
GOVT. BUDGET, % of GDP
Revenue 11.6 12.1 12.6 13.8 14.3 13.9
Expenditure 15.9 16.7 17.2 17.6 18.4 18.9
Balance -4.3 -4.6 -4.6 -3.2 -4.2 -5.0
Public debt 57.9 54.9 52.8 52.7 54.0 56.0
Sources: central bank, national statistics office, IMF, CEIC. Our accompanying Excel workbook has another 50 lines of data.

India – Forecast Data
FORECAST
2010/11 2011/12 2012/13 2013/2014 2014/15 2015/16
REAL GROWTH, %
GDP (Market Prices, 1999-00) 7.5 6.8 6.4 6.4 6.2 6.0
Exports 9.0 11.0 12.0 14.0 13.0 12.0
Imports 11.5 14.0 12.0 12.0 11.0 11.0
SHARES OF GDP, %
Exports 19.5 20.3 21.4 22.9 24.3 25.7
Imports 22.7 24.3 25.6 26.9 28.1 29.5
Net exports -3.2 -4.0 -4.2 -4.0 -3.8 -3.7
GDP (Factor Cost) real growth, % 7.5 6.8 6.4 6.4 6.2 6.0
Manufacturing real growth % 5.5 6.5 8.0 12.0 11.0 11.0
- share of GDP, % 14.5 14.4 14.6 15.4 16.1 16.9
Construction real growth % 6.0 7.0 8.0 9.0 8.0 8.0
- share of GDP, % 7.1 7.1 7.2 7.4 7.5 7.6
CURRENT PRICE DATA
GDP (MP) growth, % 14.5 13.4 13.0 13.0 12.8 12.6
GDP (MP) US$ billions 1,622 1,875 2,161 2,492 2,866 3,291
GDP (FC) Manufacturing, US$ bn 230 265 309 374 448 537
GDP (FC) Construction, US$ billions 127 147 172 202 236 276
GDP (MP)/capita US$ 1,356 1,547 1,759 2,002 2,273 2,577
MARKET INDICATORS
Exchange rate, yr avg., to US$1 42.8 41.9 41.1 40.3 39.5 38.7
Exchange rate, yr avg., to Euro 1 61.1 58.4 55.9 53.4 51.1 42.2
Exchange rate, yr avg., to Yuan 1 6.1 6.2 6.2 6.3 6.4 6.2
Population, millions + UN forecast 1,196 1,212 1,228 1,245 1,261 1,277
Inflation, WPI (93/94=100), % 5.5 5.0 5.0 5.0 5.0 5.0
Inflation, CPI, Urban non-manual, % 6.2 5.5 5.5 5.5 5.5 5.5
Mill worker earnings, mnth/Rs 127 137 148 160 173 187
- growth 7.1 8.1 8.1 8.1 8.1 8.1
- Hourly US$ estimate 0.63 0.68 0.73 0.79 0.86 0.93
RBI bank / Repo rate, year end, % 7.00 7.00 7.00 7.00 7.00 7.00
Industrial production index, % chg 6.0 7.0 7.5 8.5 9.0 9.0
BALANCE OF PAYMENTS
Export growth in Rs, % 5.0 9.0 14.0 18.0 16.0 12.0
Import growth in Rs, % 8.0 9.0 10.0 14.0 14.0 14.0
Exports, fob US$ bn 189 210 244 294 348 398
Imports, cif US$ bn 315 350 393 457 531 618
- as a % of GDP -2.5 -2.2 -2.2 -2.3 -2.3 -2.4
Foreign reserves, US$bn 227 235 243 251 263 275
- as a % of GDP 14.0 12.5 11.2 10.1 9.2 8.3
Foreign debt, US$ mn 366 366 443 536 631 724
- as a % of GDP 22.5 19.5 20.5 21.5 22.0 22.0
GOVT. BUDGET, % of GDP
Revenue 13.6 13.9 14.1 14.3 14.4 14.6
Expenditure 19.0 19.1 19.0 18.8 18.7 18.6
Balance -5.4 -5.2 -4.8 -4.5 -4.2 -4.0
Public debt 55.0 53.0 51.0 50.0 49.0 49.0
Sources: central bank, national statistics office, IMF, CEIC. Our accompanying Excel workbook has another 50 lines of data.

Ima India Asia Forecast 2009 Q1 (Outlooks & India Only)

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