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Risk Outlook Q4 2021: India

The risk of expropriation in India is low given the focus on the consolidation of economic growth following the easing of lockdown restrictions.
Colourful main ghat in Varanassi, India

The risk of expropriation in India is low given the focus on the consolidation of economic growth following the easing of lockdown restrictions. The government has made progress in recent years in strengthening regulation around expropriation and compensation. These include the successful carrying out the largest spectrum auction in the country’s history in 2016, the implementation of transfer pricing, the introduction of a goods and services tax in 2017, and new insolvency and bankruptcy laws. There is low risk of the government expropriating private hospitals to improve capacity in response to future COVID-19 outbreaks, due to the need to maintain an influx of foreign direct investment into the healthcare sector. As part of the pandemic response, the government announced measures that are likely to boost both the country’s economic outlook and credit profile. These actions included increasing the flexibility of labor laws, raising agricultural sector efficiency, expanding investment in infrastructure, incentivizing investment in manufacturing, and strengthening the financial sector.

The large and diverse nature of the economy presents an upside risk — especially as this combines with population growth and increased capacity of productivity to supplement growth potential — over the long-term outlook. What is now the second largest domestic market globally has created robust demand-driven growth, as increased wages have acted as a means to protect the economy from external shocks. These benefits do not prevent the rate of earnings and consumption from having some risk exposure to negative shocks, as wages are lower than those elsewhere. India’s per capita income increased to approximately US$7,000 in 2019, on a purchasing power parity basis, from US$3,500 in 2008. However, it remained much lower than the total of US$27,000 in comparable economies. Relatively low incomes limit household capacity to survive external shocks or weather-related events, while India’s geography renders it extremely vulnerable to damage resulting from climate pressures.

India’s petrochemicals market is expected to surge to US$300 billion by 2025, from US$178 billion in 2020, a compounded annual growth rate of about 11%. The Asian Development Bank (ADB) approved a US$100 million loan in September 2021 to improve agribusiness networks and productivity in Maharashtra, India. Maharashtra produces approximately 11% and 6% of India’s fruit and vegetable production respectively, and accounts for around 8% of the country’s floriculture exports. Despite plenty of opportunities for the growth of horticulture, most smallholder farmers still practice subsistence farming due to fragmented land ownership, insufficient capital to scale up, and limited access to emerging high-value markets, underscoring further the potential importance of the Arab-Mediterranean Corridor.