Economic Analysis


Population 1 292,707 billion
GDP per capita 1603 US$
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major macro economic indicators

  2014/15 2015/16



2017/18 (f)
GDP growth* (%) 7,2 7,9 6,7 7,3
Inflation (yearly average) (%) 5,9 4,9 4,9 5,2
Budget balance** (% GDP) -7,2 -7,1 -6,6 -6,4
Current account balance (% GDP) -1,3 -1,1 -0,5 -2,0
Public debt** (% GDP) 68,6 69,6 69,5 67,8


(e) Estimated (f) Forecast

*Take into consideration changes in GDP calculation method introduced in February 2015

** Includes federal public debt and debt for local authorities

Fiscal year: April – March


  • Diversified growth drivers
  • High levels of savings and investment
  • Efficient private sector in services
  • Moderate level of external debt and comfortable foreign exchange reserves


  • Lack of infrastructure and shortcomings in the education system
  • Bureaucratic red tape and persistent political tensions
  • Net importer of energy resources
  • Rising level of private firm indebtedness
  • Weak public finances
  • Persistent uncertainties over the Kashmir issue


Growth is expected to rebound

Real GDP is expected to grow in 2017, supported by strong performance in the services sector, after a slight slowdown at the end of FY 2016/17, due to the demonetisation decision decided by Modi’s administration on November 2016 (withdrawal of the 500 and 1000 rupee notes). Household consumption was negatively affected by this measure (+7.3% YoY in the last quarter of the fiscal year, versus +11.1 % in the previous quarter), and its impact on the informal sector has been important but remains difficult to quantify. However, improved financial integration of the poorest households should support demand in the long term. In May 2017, inflation hit a 12-year record low, influenced by weak price pressures in the food and beverages category. However, it is expected to increase in the second half of 2017, as the federal VAT system (Goods and Services Tax, GST) has been implemented in July, 1st.

Investments should continue to benefit from the impact of reforms undertaken by Modi’s government, aimed at boosting India’s manufacturing sector, attracting FDI and reduce constraints burdening on the economy. However, reforms aimed at cleaning up the banking system take time and could impact the supply of credit, despite Reserve Bank of India’s loose stance, and investment would remain below its potential. The increase in government expenditures in infrastructure (road and rail infrastructures public utilities) should offset this weakness. Nevertheless, budgetary constraints and delays in the land reform will limit the progress of these projects.


Willingness to improve public finances

Fiscal deficit and public debt levels remain high, but the country has initiated a plan to reduce them. Fiscal consolidation efforts are facilitated by low energy prices. In addition, measures to demonetise a portion of outstanding bank notes should improve budget revenue by reducing the weight of the informal economy. Eventually, the introduction of VAT at the federal level is along those lines.


External accounts under control

The current account deficit is expected to step up, as imports will grow faster than exports. The increase in imports is partly due to the rising demand for gold after the demonetisation of 2016 (gold imports amounted to 483 tonnes January-May 2017, versus 208 for the same period in 2016). [VL1] Deficits in the trade balance and income balance should worsen, and the services surplus should reduce.

The rupee is expected to remain relatively stable in 2017, but, like other emerging currencies, it remains vulnerable to a rise in global risk aversion and the evolution of the monetary policy in the United States. Foreign exchange reserves will remain at comfortable levels (nearly 10 months of imports in 2017), and FDI and portfolio investments are on an upward trend, supported by the easing of regulations, notably about bankruptcy.


Narendra Modi supported by regional elections 

Narendra Modi’s party, the BJP (Bharatiya Janata Party), won the regional elections which were held on March 2017, gaining 312 out of the 403 seats in the lower house in Uttar Pradesh. This is the most populated state and so is often considered a “popularity barometer” for the governement. The victory helps to further strengthen Modi’s position, two years ahead of the next national elections. Demonetisation seems to have weighed on household consumption, but was eventually perceived as a commitment to his campaign proposal to combat inequality and root out corruption. However, the Congress Party continues to dominate the Upper House, which is delaying reforms long-awaited by the business community.

Moreover, Kashmir remains a source of tensions between India, Pakistan and the separatists of the region. Diplomatic talks were suspended after an attack on an Indian base in Punjab on January 2016, and relations between the two countries have deteriorated in recent months. Indeed, new tensions have emerged after the Indian army shot the leader of the main insurgent movement, Sabzar Ahled Bhat, in Kashmir on May 2017. However, an escalation of violence is unlikely as Pakistan and India both have an interest in maintaining the status quo.

 [VL1]I added "with the withdrawal of the 500 and 1000 rupee notes in the 1st section


Last update : June 2017

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