The BRIC Countries: India

Includes: INDY, INP, PIN
by: Hale Stewart

From the CIA World Fact Book:

India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and has served to accelerate the country's growth, which has averaged more than 7% per year since 1997. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for more than half of India's output, with only one-third of its labor force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services and software workers. In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms. However, India's economic growth in 2011 slowed because of persistently high inflation and interest rates and little progress on economic reforms. High international crude prices have exacerbated the government's fuel subsidy expenditures contributing to a higher fiscal deficit, and a worsening current account deficit. Little economic reform took place in 2011 largely due to courruption scandals that have slowed legislative work. India's medium-term growth outlook is positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India has many long-term challenges that it has not yet fully addressed, including widespread poverty, inadequate physical and social infrastructure, limited non-agricultural employment opportunities, insufficient access to quality basic and higher education, and accommodating rural-to-urban migration.

India looks more like Russia than Brazil. The country has some solid strengths -- especially in the intellectual property fields -- but still has a high rate of poverty, poor investment and a fairly stodgy political systems that gets in the way more than it helps overall.

Here's how their economy breaks down:

  • Agriculture: 18.1%
  • Industry: 26.3%
  • Services: 55.6% (2011 est.)

Let's look at the data:

The top chart shows overall GDP growth, which has been increasing at a strong clip. However, notice that from 2008-2010, the entire economy was hit hard by the recession. However, we see a return to incredibly strong growth in 2011.

The bottom chart shows the rate of GDP change, YOY. Like Brazil, we see a clear slowing over the lost 4 quarters, largely because high inflation is sapping demand and forcing the central bank to run high interest rates.

Overall industrial production has been declining on a YOY basis over the last two years. Also note the dip into negative territory recently -- not a good sign.

Information on the unemployment rate is inconclusive.

India is a net importer, largely because it has little domestic energy resources.

India has had a stubbornly high inflation rate for the last two years. We see the spike to 16% YOY in early 2010. While it has come down, it has taken over two years of effort to do so. The primary method of combating it has been a gradual increase in interest rates over the same period of time, which is obviously a big reason for the recent slowdown in overall economy growth.