Abstract
BMI expects India' s GDP growth to slow to 5.0% in FY09/10 (April-March),
following a 6.8%
expansion in FY08/09, as a reduction of capital inflows
brings the economy back to more sustainable
growth levels after three
fiscal years of breakneck expansion. We maintain that India will need to
address
inadequate and inefficient investment in education and
infrastructure if it wants to uphold annual GDP
growth at 8-9% and create
jobs for the growing cohorts entering the labour market each year.
While
India may be less vulnerable to an export-led slowdown in growth than China
and other East Asian
economies, we are still expecting the coming years to
be difficult for the burgeoning economy. India has
enjoyed record growth
in recent years, due largely to a strong inflow of funds from overseas
investors
eager to get an early foothold in what will inevitably become
one of the world' s largest economies. India' s
GDP growth averaged 8.8%
between FY03/04 (April-March) and FY07/08, which we believe is 1.5-2.0
percentage points (pp) above sustainable trend growth at 7.0-7.5%.
With
capital inflows now contracting sharply, we believe India will return to
below-trend growth in both
FY08/09 and FY09/10, with the main part of the
downside concentrated in the latter year. We are
forecasting growth of
6.8% and 5.0% in FY08/09 and FY09/10, respectively, a marked slowdown
compared with the 9.0-9.6% GDP growth rates recorded in the three preceding
fiscal years. Moreover,
with our new assumption of a more prolonged global
downturn extending well into 2010, we have also
decided to revise down our
GDP forecast for FY2010/2011, from 7.9% to 6.4%.
While this slowdown will
be felt across large swathes of Indian society, it is still far from the
negative
growth levels we are forecasting in other emerging economies such
as Singapore and South Korea. This is
because we believe that India is
more resilient to a global slowdown than other economies due to its low
exports-to-GDP ratio (14-15%) and an expected resilience in domestic
consumption due to lower food
and fuel prices raising the disposable
income of low-income households.
However, we admit that some of these
assumptions are subject to downside risks as a sizeable share of
India' s
recent consumption and investment boom has been financed by large investment
inflows, which
are now slowing sharply, and even reversing.
We expect
monetary easing to continue in 2009 as policymakers seek to cushion a marked
slowdown in
economic growth, although the pace of interest rate cuts will
not be as aggressive as in Q408. However,
with wholesale price inflation
continuing to tumble, we do not preclude that the central bank may again
have to revert to aggressive monetary easing to avoid a deflationary
spiral.
We see increasing risks in India' s seemingly chronic current
account deficit in spite of an anticipated
improvement in FY09/10 on the
back of a falling bill for oil imports. This is because capital inflows
are
likely to remain impaired due to global financial deleveraging and
heightened risk aversion. We therefore
reiterate the need for India to
attract a higher degree of foreign direct investment inflows instead of
the
more volatile portfolio investment and overseas borrowing that have
dominated inflows in recent years.
We believe India will find it
considerably more difficult to cover its current account deficit through
inflows on the financial account in the coming years, as both the slowing
Indian economy and global
deleveraging are likely to depress financial
inflows in both FY08/09 and FY09/10.
In the Asia Pacific, we profile 23
companies. These are AEGON, AIG, Allianz, Aviva, AXA, Cardif,
Fortis,
Generali, Groupama, HDI-Gerling, HSBC Insurance, ING Group, Liberty
Mutual,
Manulife, MetLife, Prudential Financial, Prudential plc, QBE, RSA,
Sun Life Financial, The
Hartford, Principal Financial Group and Zurich
Financial Services.
We estimate that, over the course of 2008, total
premiums in India rose by 2% to INR2,251,694mn. Nonlife
premiums rose by
10% to INR308,228mn, while life premiums rose by 1% to INR1,943,466mn.
Between now and the end of the forecast period, we expect that annual non-life
premiums will grow to
INR567,187mn, while annual Life premiums should
increase to INR739,281mn. Growth in non-life
premiums should be driven by
the general growth in nominal GDP plus a rise in non-life penetration from
the current level of 0.54% to 1.00%. Growth in Life premiums should be driven
by the change in the
overall population and a rise in life density from
US$35 to US$50 per capita.
BMI' s Insurance Business Environment Rating is
53.4.
|
Related Report
|
View Cart
