Previous Quarterly Editions
Expropriation Risk: 53 55 54 55 ►Political Violence Risk:57 57 57 57 ►Terrorism Risk:69 69 69 71 ►Exchange Transfer and Trade Sanction Risk: 35 35 44 44 ►Sovereign Default Risk:57 47 56 56 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: Medium Food/fuel policy protests: High
*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 calculations, see the introductory essay.
Notwithstanding rising unemployment and persistence poverty and social deprivation, India is among the better-performing countries in the world today. Despite the disadvantageous global environment, the economy registered reasonable year-on-year growth of 4.4% during October-December 2022. This is lower than the 6.3% growth recorded during July-September 2022 and while forecasts suggest inflation will moderate in fiscal year 2024 compared to fiscal year 2023. It is likely to remain in the range of 5%-6% edging the 6% ceiling to the 2%-6% inflation range targeted by the Reserve Bank of India.
High inflation rate led the Reserve Bank to raise the policy rate in steps from 4% in 2020 – when the COVID-19 pandemic struck India – to 6.5% in February, when the monetary policy committee last met. This would slow growth not just by affecting debt-financed corporate investment adversely, but also by curtailing debt-financed investment in personal housing and debt financed purchases of automobiles and consumer durables. If the Finance Minister also delivers on the promise to reduce the fiscal deficit-to-GDP ratio of the central government from 6.4% in financial year 2022-23 to 5.9% in 2023-24, and return to the goal of reducing the figure to below 4.5% in 2024-25, growth in
government expenditure would have to be curtailed, affecting aggregate demand and GDP expansion.
The curtailment of government expenditure has also resulted in austerity around social expenditure programmes. The budgetary allocation for 2023-24 for the employment guarantee programme for the poor has been slashed to INR600 billion from the INR894 billion spent in 2022-23. A range of other social protection expenditures have been subjected to similar cuts. The food subsidy bill is expected to decline from INR2.8 trillion to INR1.97 trillion, facilitated by the decision to do
away with the provision of five kilograms of free food grain (in addition to the subsidized ration) for those covered by the National Food Security Act, introduced in response to the damage inflicted by the pandemic. Budgeted allocation for the school meals scheme in 2023-24, at INR116 billion, is also significantly lower than the estimated spending under that head of INR128 billion in 2022-23.
Ever since the growth slowdown triggered by the demonetization of ‘high-valued’ currency notes in November 2016, the poor in India working in the informal economy have seen their employment and earnings eroded. This trend was accelerated by the effects of the pandemic and socioeconomic lockdowns that accompanied it. This has already led to social unrest and union action, besides a prolonged farmers’ agitation. The popularity of Prime Minister Narendra Modi, especially among majority Hindus, and strong police action dampened protest. But with growth, inflation, and austerity policies, Modi’s image is taking a turn for the worse, and political risks are on the rise.
With growing uncertainty in the world economy is affecting India’s exports and export prospects. The tendency to hold out against cheap imports from abroad and privilege India’s large business relative to foreign firms, camouflaged expropriation to rein in foreign firms is likely. A more than USD350,000 fine imposed by the Reserve Bank of India on retail giant Amazon for non-compliance with know-your-customer requirements is seen by some as a way of asserting control on the operations of foreign fintech firms and investors.
In recent years, a breakdown of social cohesion – driven by the aggressive Hindu communal stance adopted by organizations linked to the ruling Bharatiya Janata Party – has increased the risk of political violence.
There is also discontent in the sensitive border state of Jammu and Kashmir, with majority Muslim citizens in parts of the state suspecting that after the retraction of the special status given to Jammu and Kashmir and its population, the [insert the parties leading the change] is making effort to change the demographic profile of parts of the state to political benefit the party ruling at the centre.
There are also fears government property and property expropriated from Muslim dwellers will be transferred in the name of developing the state to achieve this objective.
Elsewhere there is an increase in instances 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.
Finally, attempts to intimidate and incarcerate the political opposition, including attempts to arrest leaders extending to former Congress President Rahul Gandhi, has made politics extremely contentious. There is a real danger resulting conflicts could spill over into and exacerbate political violence.
Terrorism in India stems from multiple sources. There are terrorist acts by far-right Hindu fundamentalists seeking to precipitate fear of attacks on Hindus from other communities, especially Muslims, and to terrorise Muslims and Christians. Partly in response to this, and influenced or aided by international forces such as Al-Qaeda, there is an increase in Muslim fundamentalism and a tendency to engage in terrorist activity.
Left-wing terrorist organizations have a small base in pockets of the country. More recently, there has been a surge in Sikh terrorist activity, led by a self-styled leader campaigning for an independent Sikh state, Amritpal Singh, who is in hiding to avoid incarceration under anti-terrorism laws. Police have arrested many of his followers and raided property linked to them. . As economic conditions worsen, these activists could be boosted by [insert clarifying comment here].
India’s exports have been performing poorly in recent months fuelling a widening trade deficit. However, remittances from workers abroad have dampened the adverse effects of this on the balance of payments and the value of the rupee. There has been a recent reversal of capital flows into the country, as economic uncertainty and interest rate hikes in the advanced nations has triggered an outflow of capital.
Moreover, with the decision by [insert relevant party] – in the context of the crises facing certain banks in the U.S. – to make systemic exceptions and guarantee even uninsured deposits with U.S. banks facing difficulties, and to make good losses suffered by U.S. banks because of a decline in bond prices, the flight to safety of capital to the U.S. would increase.
These factors have enhanced the risk of currency depreciation and instability which has in the past been favoured by foreign portfolio investors. If this leads to excessive erosion of reserves [specify which party will act] will act to retain scarce dollars and reduce outflows. These moves may result in trade protectionism and capital controls by [specify party].
With an external debt-to-GDP ratio that has been stable at a low of around 19-20% throughout 2022 (comparatively not notably high compared to most emerging markets) there is little risk of sovereign default. The real problem is the increase in external commercial borrowing by the corporate sector during the era of low international interest rates. Much of this is not hedged and raises the rupee cost of debt servicing as interest rates rise and the currency depreciates. This in turn raises the level of debt stress, raising the possibility of default even if not of a systemic kind.
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