An overview of India's political economy www.deekpay.com

i. political overview

India is the world's largest democracy, having gained independence from British rule on 15 August 1947, with 28 states and nine Union Territories (UTs) under the direct jurisdiction of the central government. Its system of government is a Union Cabinet system, with the Cabinet taking charge of the affairs of the state and the President being a virtual head of state. The President is elected for a five-year term by an electoral college comprising the two houses of parliament and local assemblies. The current President, Drupadi Murmu, was elected by the central and state assemblies in July 2022, and the next presidential election is expected to be held in July 2027. The Cabinet consists of the Prime Minister, who is appointed by the President, and the heads of ministries, who are appointed by the Prime Minister at the request of the President, with the current Prime Minister, Narendra Modi, taking office in May 2019 for a second term.

India has a bicameral parliamentary system, with the Upper House (Rajya Sabha) having 245 members voted in by members of state assemblies for a six-year term, with one-third re-election every two years, and the Lower House (Lok Sabha) having 545 members, of which 543 seats are directly elected by the people for a five-year term. The last general elections to the Parliament were held in May 2019, in which Prime Minister Modi's Bharatiya Janata Party (BJP) secured an absolute majority of 303 out of 543 seats in the Lower House and broke away from its dependence on the National Democratic Alliance (NDA), and the next elections are expected to be held in May 2024.The Lok Sabha has a total of 545 members, of which 543 seats are elected by the people for a five-year term.

On the domestic front, the Modi government will prioritise tackling inflation and unemployment in the short term, with India's economic policy expected to focus on consolidating GDP growth and creating jobs, and with inflation forecast to deteriorate, the government is likely to prioritise investment in infrastructure and increase credit support for SMEs and micro-enterprises. In 2022, the Indian government will prioritise the promotion of sustained economic recovery, with a focus on building infrastructure such as ports, logistics parks, and the creation and upgrading of road and rail networks, with major road and freight corridors expected to be completed by 2023-2024.

On the domestic political front, the influence of Prime Minister Modi and the ruling Bharatiya Janata Party's (BJP) majority in Parliament, coupled with weak opposition in the country, will help to maintain political stability in India, and it is expected that the BJP will complete its term of office up to 2024.

II. Economic overview and outlook

India is one of the world's 10 largest mineral deposits, with coal, crude oil, natural gas and other energy minerals, iron, copper, zinc, gold, magnesium and other metal minerals and mica, granite, marble, limestone and other dozens of non-metallic minerals and a variety of rare metal minerals. One of the iron ore reserves for the world's 3%, coal for the world's 10%, bauxite for the world's 4%; the other mica minerals for the world's first, barytes (barytes) 2nd, chromite 4th, bauxite 6th, manganese 7th, aluminium 10th, crude steel 11th, etc. In 2021, the industrial structure, agriculture, industry and services accounted for the value of the GDP output were 15.511 TP3T, 30.751 TP3T, 53.741 TP3T.

(i) General economy

After a recession in FY2020/2021, India's government is committed to rapidly expanding vaccination coverage in response to future changes in the CKP epidemic and expanding domestic production to boost the recovery, coupled with a rapid surge in exports, which will result in a real GDP growth rate of 8.79% in FY2021/2022.

Economic growth in FY2022/2023 will benefit from the release of pent-up demand as liquidity recovers, while investment in sectors such as transport, IT and pharmaceuticals will be boosted by improved business confidence, and rural incomes and consumption will be supported by favourable climatic and foodstuffs terms of trade, with India's real GDP growth in FY2022/2023 and FY2023/2024 forecasted at 6.90% and 5.10%.

(ii) Inflation

In 2021, due to rising commodity prices and the impact of supply chain disruptions, resulting in India facing upward pressure on inflation, but the adoption of a tight monetary policy and commodity prices moderated, will offset the inflationary pressures arising from the recovery of domestic demand, the average annual rate of increase in consumer prices in India in 2021 was 5.13%.

It is expected that in 2022, India's retail fuel tariff reduction will help reduce transport price inflation moderately, and the normal monsoon favourable crop harvests will also help curb food price inflation, forecasting that the average annual consumer price growth rate in 2022 and 2023 will be 7.00% and 5.20%, respectively.

(iii) Financial situation

India's fiscal deficit to GDP ratio was 6.71% in FY2021/2022 as the government prioritised economic recovery with a second wave of stimulus packages in June 2021, mainly providing loan guarantees and credit to industries affected by the CKD outbreak and increasing investment in healthcare, as well as supporting the sharply slowing economy.

It is expected that in FY2022/2023, the Indian government will spend a large amount of capital expenditure on defence, energy, telecommunication, transport and infrastructure projects and take measures such as reducing fuel tariffs and increasing fertiliser subsidies, etc. It is expected that the government will moderately cut part of its infrastructure spending to compensate for some of the cost of subsidies, and it is predicted that India's fiscal deficits as a percentage of GDP will be 6.60% and 6.00% in FY2022/2023 and FY2023/2024, respectively. India's fiscal deficit as a percentage of GDP for FY2022/2023 and FY2023/2024 is forecast to be 6.60% and 6.00%, respectively.

(iv) External trade and balance of payments

In 2021, due to the recovery of India's domestic demand driven by increased imports, as well as the impact of global oil prices rise in the cost of imports, resulting in a widening of the trade deficit, the current account turned into a deficit, India's current account deficit in 2021 as a share of GDP of 1.05%.

Due to high import prices and increased import volumes, the merchandise trade deficit is likely to continue to widen, although India still maintains its position as a leading exporter of IT services, and the inflow of foreigners from overseas, so that the services account and the secondary income account will remain in surplus, but it is still not enough to offset the large deficit generated by merchandise trade, the current account will remain in the red, the current account deficit is forecast to be 1.50% and 1.40% as a share of GDP in 2022 and 2023, respectively. The current account deficit as a percentage of GDP is forecast to be 1.50% and 1.40% in 2022 and 2023 respectively.

(v) Exchange rates

The Indian rupee remains stable relative to the US dollar in 2021, supported by strong foreign investment inflows and high foreign exchange reserves, while the Indian rupee ends 2021 at 74.30:US$1 against the US dollar due to India's relatively high inflation rate and current account deficit.

Between January and July 2022, the Indian rupee depreciated by 5.5% in nominal terms against the US dollar, reflecting the narrowing of the spread with the US dollar and the geopolitical contagion of the Russia-Ukraine war that reduced the demand for emerging market assets, and therefore the Reserve Bank of India (RBI) intervened with the sale of foreign exchange deposits in an attempt to mitigate the depreciation of the rupee, but it is expected that the strong performance of the economy and the increase in the policy interest rate by the RBI in H2 2022 will support the Indian rupee. However, it is expected that the strong economic performance in the second half of 2022 and the increase in policy rates by the Reserve Bank of India will support the Indian rupee, and it is estimated that the Indian rupee will trade at 81.43:US$1 and 84.78:US$1 against the US dollar by the end of 2022 and 2023 respectively.

(vi) External debt and foreign exchange reserves

In 2021, India's foreign exchange reserves will be $633.614 billion, estimated external debt will be $611.603 billion, the ratio of external debt to GDP will be 19.30%, the ratio of external debt to exports will be 81.20%, and the ratio of debt to negative debt will be 7.60%, and the ability to pay for imports from the foreign exchange reserves will be 10.60 months, and the proportion of short-term debt to external debt will be 18.81%, and the proportion of short-term debt to foreign exchange reserves will be 23.01%. TP3T, short-term debt accounted for 23.01% of foreign exchange reserves. Forecasts for 2022 and 2023, India's foreign exchange reserves of 543.210 billion U.S. dollars and 588.810 billion U.S. dollars, respectively, the external debt of 630.347 billion U.S. dollars and $ 646.864 billion, the external debt to GDP ratio of 1,910.0% and 1,871.01T3T, external debt to GDP ratio of 1,910.% and 1,801.1T3T, external debt to GDP ratio of 1,910.1T3T and 1,801.1T3T. TP3T, the ratio of external debt to exports was 71.70% and 65.70%, the ratio of debt to equity was 7.70% and 7.40%, the ability to pay for imports from foreign exchange reserves was 7.60 months and 7.40 months, the proportion of short-term debt to foreign exchange reserves was 19.28% and 19.76%, and the proportion of short-term debt to foreign exchange reserves was 29.97%. The proportion of short-term debt to external debt was 19.28% and 19.76%, and the proportion of short-term debt to foreign exchange reserves was 29.97% and 32.99% respectively.

III. External relations and share of major trading countries

India joined the United Nations in 1945 and has diplomatic relations with more than 160 countries and is a member of many international organisations. As an advocate of the Non-Aligned Movement (NAM) after its independence, India held the chairmanship of the NAM organisation, and in recent years, with its rapid economic growth, it has emerged as a major emerging power with increasing international standing and influence.

India's foreign policy focuses on the priority of good-neighbourliness, not only by strengthening relations with its neighbours, but also by actively promoting great-power diplomacy with the United States of America, Japan, Russia, the United Kingdom, France and Germany, and by participating actively in international organisations and, in recent years, by seeking a permanent seat on the United Nations Security Council.

Since the outbreak of the Russia-Ukraine war, India has maintained a neutral stance and has not followed international opinion in condemning Russia. Although this has caused panic among its partners, such as the United States, Australia and Japan, India still maintains friendly relations with these countries, and India has also increased its defence purchases from the United States and France, in order to reduce its dependence on Russia. In addition, there is a border dispute between India and mainland China, and both sides have increased the deployment of heavy weapons along the border, thus raising the risk of military conflict. India and Pakistan will also try to resume contacts, but no significant improvement is expected yet, as cross-border terrorism and the Kashmir sovereignty dispute remain major obstacles.

In terms of foreign trade, India's major export items in 2021 are engineering goods (26.71 TP3T), petroleum products (13.81 TP3T), gems and jewellery (9.61 TP3T), pharmaceuticals (6.21 TP3T), etc.; and its major import items are petroleum products (25.51 TP3T), electronic products (11.71 TP3T), gold (9.71 TP3T), machinery (6.8%) and so on.

In 2021, India's main export countries or regions are the United States (18.1%), the United Arab Emirates (6.4%), mainland China (5.8%), Bangladesh (3.6%), etc., and the main importing countries are mainland China (15.3%), the United Arab Emirates (7.5%), the United States (7.21 TP3T), Switzerland (5.1%) and so on.

IV. Bilateral trade with the country

In 2021, China's exports to India were valued at USD 4,522.65 million and imports were valued at USD 3,176.27 million, with a trade surplus of about USD 1,346.37 million.From January to August 2022, China's exports to India were valued at USD 3,527.58 million and imports were valued at USD 2,394.16 million, with a trade surplus of about USD 1,133.43 million.In 2021, China's exports to India were valued at USD 2,394.16 million and imports were valued at USD 2,394.16 million, with a trade surplus of about USD 1,133.43 million.

With regard to the structure of import and export goods to India, in 2021, China's main exports to India are plastics and their products (22.07%), motors and equipment and their parts (18.78%), organic chemical products (18.23%), etc.; imports of fossil fuels, mineral oils and their distillate products (24.71%), iron and steel ( 20.68%), organic chemical products (8.72%) and so on. 20.68%), organic chemical products (8.72%) and so on.

V. External ratings and rankings

International credit rating agencies Fitch (Fitch), Standard & Poor's (S&P) and Moody's (Moody's) respectively approved India's sovereign credit rating BBB-, BBB- and Baa3, the future outlook are stable (Stable).

According to the COFACE economic research rating, India's prosperity indicator is A4, the country risk assessment level is C, belongs to the high risk (High Risk) level; according to the Euler Hermes economic research analyses, India in the country risk assessment level is B2, medium-term rating is B (Medium Risk), short-term rating is 2 (Medium Risk Medium).

According to The Global Competitiveness Index 4.0 2019 Rankings published by the World Economic Forum in October 2019, India ranked 68th out of 141 participating economies globally in terms of competitiveness, a decline of 10 places from the previous year's ranking of 58; according to the IMD (Lausanne School of Management, Switzerland), India ranked 37th out of 63 participating economies globally in the According to the IMD World Competitiveness Yearbook 2022 published by the IMD (Lausanne School of Management, Switzerland), India ranked 37th out of 63 participating economies in the world, an improvement of 6 places over the previous year's ranking of 43; in addition, according to the "Corruption Perceptions Index 2021" published by Transparency International, India ranked 37th out of 141 participating economies in the world, an improvement of 10 places over the previous year's ranking of 58. Corruption Perceptions Index 2021" published by the International Transparency Organisation (Transparency International) Corruption Perceptions Index report, India ranked 85th in 180 countries or regions, and the Maldives listed in the same level, compared with the previous year's ranking of 86th, an improvement of 1 place; according to the World Bank (World Bank) issued the "DOING BUSINESS 2020" ease of doing business According to the 'DOING BUSINESS 2020' survey released by the World Bank, India ranked 63rd out of 190 countries, an improvement of 14 places from 77th in the previous year.

vi. synthesis of comments

India is rich in mineral resources and human resources, and is the world's most populous democracy. Due to the influence of the incumbent Prime Minister Narendra Modi and the ruling Bharatiya Janata Party's (BJP) majority in the parliament, coupled with the weak domestic opposition, all of which will help maintain political stability in India, the BJP is expected to complete its current term of office up to 2024; in addition, it is expected that the Indian economic policy will focus on GDP growth and job creation to address inflation and unemployment, and will likely prioritise the construction and upgrading of infrastructure and expanding credit support for small, medium and micro enterprises. It is expected that the BJP will complete its current term of office by 2024. In addition, it is expected that India's economic policy will focus on GDP growth and job creation to address inflation and unemployment, and is likely to prioritise the construction and upgrading of infrastructure, and expand credit support to small, medium and micro-enterprises.

Forecast 2022 India real GDP growth rate of 6.9%, the average annual rate of increase in CPI is 7%, the fiscal deficit to GDP ratio of 6.6%; current account deficit to GDP is 1.5%, foreign exchange reserves of 543.21 billion U.S. dollars, foreign debt of 630.347 billion U.S. dollars, foreign debt to GDP ratio increased to 19.11 The ratio of external debt to GDP increased to 19.11 TP3T, the debt-negative ratio was 7.71 TP3T, and the foreign exchange reserves paid for the import capacity for 7.6 months. All in all, India has a large amount of foreign exchange reserves, the overall external liquidity is still good.