Previous Quarterly Editions
Expropriation Risk: 54 55 55 54 ▼Political Violence Risk:57 57 57 57 ►Terrorism Risk:69 71 71 71 ►Exchange Transfer and Trade Sanction Risk: 44 44 44 44 ►Sovereign Default Risk:56 56 56 55 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: HighAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
India appears to have recovered from the COVID-19 crisis in substantial measure and has benefited from access to a partial waiver of sanctions on the use and export of discounted oil from Russia since the beginning of the Ukraine war in February 2022. Those circumstances seem to have helped the country weather the storms that have battered most low- and middle-income countries.
India features among the fastest growing economies in the world. GDP growth, estimated at 9.1% in 2021 to 2022 and 7.2% in 2022 to 2023, is projected by the International Monetary Fund to slow over the subsequent two years but remain in the 6.1% to 6.3% range — well above projections of China’s growth of 4.5% to 5.2%, for example. This bounce back from the minus 5.8% contraction during 2020 to 2021, when the pandemic raged, is presented as a return to a 7% annual trend rate recorded over 2014 to 2020.
Further, unlike with debt-stressed low- and middle-income countries, though India’s external debt at the end of March 2023 increased by US$5.6 billion to US$624.7 billion from a year earlier, the external debt-to-GDP ratio declined to 18.9% at the end of March from a low of 20% a year earlier. India’s foreign exchange reserves are also adequate to take care of this burden.
There is a case for caution when basing assessments of performance on these figures. To start with, GDP in absolute terms has not recovered significantly. A comparison of the absolute value of GDP in 2022 to 2023 with that in the pre-COVID year of 2019 to 2020 reflects an increase of 10.1% over a three-year period. That amounts to an average annual increase of just 3.4%. This must be seen in the context of the fact that over the nine quarters preceding 2020 to 2021, the year-on-year rate of growth had fallen almost consistently from 8.9% in the first quarter of 2018 to 2.9% in the first quarter of 2020 before recording a 23% fall in the April to June quarter of 2020. The post-pandemic recovery is far less dramatic than it is made out to be.
From the economic side, there are only two real sources of political risk. The first is the high degree of income and wealth inequality in India, which has been on the rise in recent years. An Oxfam study released in January 2023 found the richest 1% owned 40.5% of total wealth in 2021. The second factor is inflation, which remains high despite the easing of global prices. The increase in the Consumer Price Index for all commodities, relative to the corresponding month of the previous year, stood at 4.3% in May 2023, 4.9% in June, 7.4% in July and a still-high 6.8% in August.
What is remarkable is the contribution of food and beverages to these increases, which rose from 23% over 2020 to 2021 to 87% over April to July 2023. The spillover effects of global price inflation, speculation in domestic markets and unseasonal rainfall have made staples, including cereals and vegetables, the main drivers of food price inflation. Meteorologists report that August 2023, a monsoon month, was the driest since 1901, when records began. This deficiency comes after significant shortfalls in June and
July as well. The overall monsoon rainfall could be well below normal; the level of agricultural, especially food grain, production, which has been reasonably bountiful for the past seven years, may drop significantly in crop year 2023 to 2024, accelerating food price inflation.
The focus of inflation on food commodities that enter the consumption basket of poorer sections of the population in an unequal society does provide conditions for conflict and social disruption. This tends to be underplayed, however, since the greater political risk arises from the divisive agenda being adopted and communal and caste conflict being ignored or even encouraged by the ruling coalition in the run-up to general elections due early next year. That, rather than economic stress, is the determinant of political risk in India at present.
TREND ▼On the foreign investment front, three tendencies are operative. First, the Indian government is keen on attracting foreign investors who would use India as a production hub for manufactured goods meant for export to world markets. The objective seems to be to emerge as the principal beneficiary of the “China plus one” policy being pursued by multinational corporations to reduce dependence on sourcing from China. The second is the objective to keep financial flows into India at high levels, as a means of strengthening the country’s balance of payments, despite limited merchandise export growth. The third is to promote national champions that are close to the government, at the expense of foreign firms. It is unlikely that the growing emphasis on the third would overwhelm the first two to lead to expropriation.
With parliamentary elections due in less than a year, the ruling Bharatiya Janata Party is adopting an aggressive, majoritarian Hindu communal stance and targeting minorities to polarize the environment as a way of securing another majority.
There has been an increase in instances of attacks on mosques, very often claimed to have been constructed over the ruins of temples, and of attacks on Christian places of worship, priests and congregations, on the grounds that these are linked to forced conversion of Hindus to Christianity.
The response to such aggression often spills over into violence and social disruption. As developments in the state of Manipur illustrate, intervention of this kind can go awry, leading to ethnic conflict and political violence of a kind that the government and the paramilitary forces are unable to control.
Despite claims of a return to normalcy, terrorist attacks and government anti-terrorism actions are periodically reported from the state of Jammu and Kashmir. These seem to be on the increase in recent times. Though less frequent, terrorist attacks by left wing extremists also tend to reoccur.
Finally, the National Intelligence Agency has been reporting arrests from across the country in a strike against militant terrorism cells. While some human rights activists are sceptical regarding this claim, it is an implicit declaration that latent terrorist activity is a problem.
The Indian rupee has been on the decline, though it is unclear to what extent this is a conscious decision of the central bank to allow the currency to depreciate. Software services exports, however, and remittances from Indian workers abroad have ensured that the balance-of-payments situation is not adverse, as in many other low- and middle-income countries. This reduces exchange rate risk.
However, as illustrated by a recent announcement of likely restrictions on imports of computer hardware, the use of protectionist measures such as licensing of imports to shore up domestic production is very much on the government’s agenda. Such intervention can gather strength, if the exit of foreign financial investors in the context of higher international interest rates begins to erode foreign reserves.
With an external debt-to-GDP ratio that is low compared with most emerging markets, there is little risk of sovereign default by India. Short-term debt on residual maturity basis (or all debt obligations falling due over the next 12 months) amounted to just 47.4% of foreign exchange reserves at the end of March 2023.
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