| 6 Economic Forecasts for India that Make You Worry |
In the last few years, India has taken on a new role as a global engine of growth. With other emerging markets struggling, Indian business leaders and policymakers have stepped up to champion the cause of global growth. Up till now, this bullish outlook for India has been based on statistical measures like Gross Domestic Product (GDP) or Foreign Direct Investment (FDI). For example, the World Bank’s recent report on “India As A Growing Global Economic Power” is just one of many examples. But underneath those headline figures are some worrying trends that investors need to know about. The sooner we understand those risks, the better our chances of protecting our capital from unforeseeable market volatility. Let’s explore some of the economic forecasts for India that make us worry:
India’s mounting bad loan problem
The Indian banking sector is under immense pressure to clean up its balance sheets. This is in large part due to the non-performing loan (NPL) problem that has been plaguing the sector for years. The bad loan problem has gathered steam since the turn of the decade, with several banks grappling with high levels of stressed assets. As of March 2018, gross NPAs of commercial banks were at 9.6%, which is worrying in itself. The problem of bad loans has been compounded by the collapse of the Vijay Mallya group and the trouble with the Rotomac group. The combined gross NPAs of these two groups account for more than 10% of the total stressed assets in the Indian banking system. Bad loans have been a problem for Indian banks for quite some time. But these numbers are now so high that they become a potential systemic risk for the Indian economy. Adequate regulatory oversight is required so that banks don’t turn into casinos.
Falling rupee and rising inflation
One of the biggest economic forecasts for India is the fall in the value of the rupee. The recent sharp decline in the rupee is a cause of concern because it is being driven by external factors. The drop in the value of the Chinese yuan is one of them. The Chinese yuan’s fall against the dollar has also contributed to the rupee’s fall against the dollar. The value of the rupee is expected to fall further in the next few months, as the demand and supply of the dollar are likely to increase. This is because the dollar has emerged as a safe haven due to rising trade wars and geopolitical risks. The recent Freedom of Information (FOI) report has confirmed that Indian authorities had requested that the U.S. Federal Reserve System release $6.3 billion from an escrow account as part of India’s recent payments under the U.S.-India nuclear deal. This is expected to increase demand for the dollar, as India will now have more dollars in its reserves.
Shrinking Employment Opportunities for Indians
India is facing an employment crisis, and that has two economic forecasts for India. First, it means that there will be a reduced number of jobs in the formal sector. The formal sector accounts for just 15% of India’s employment, but it is where the majority of organized sector jobs are. The second forecast is that Indians will increasingly have to compete for low-paying jobs. Indian workers are already struggling to make a decent living, with average wages in the country being less than $300 a month according to the World Bank.
India’s dependence on other nations for its oil supply
As India emerges as a global economic power, it will have to import more of its oil, which is a very dangerous economic forecast for India. In 2015, India imported more than 80% of its crude oil requirements, with most of it coming from the Middle East. The demand for oil in India is expected to increase in the coming years, and there are concerns over how the country will be able to meet its demand, given its current dependence on imports. The situation is further complicated by the fact that the Middle East remains a volatile region. Any geopolitical risk in that region will have a direct bearing on the oil supply to India.
Indian consumers and e-commerce market: too much hype?
Indian consumers are expected to play a key role in the economic forecasts for India. They are expected to boost e-commerce growth, while also boosting overall consumption. But is the e-commerce market in India too much hype? The Indian e-commerce market is expected to touch $60 billion by 2022, according to a recent report by RedSeer Consulting. This is just 1% of the total retail market in India, which stands at $1 trillion. India’s e-commerce market is expected to grow rapidly in the coming years, driven by rising internet penetration, growth in the number of digital buyers and increased focus on online shopping from brick-and-mortar retailers.
Conclusion
The next decade will be crucial for India. The country’s economic forecasts show great promise, but they come with some significant risks. The Indian economy has weathered a lot of storms over the past few years, and it has managed to narrowly escape a slowdown. But it is important to be aware of some of the negative economic forecasts for India. This will help investors to formulate their investment strategies accordingly.
