India to be among fastest growing markets in five years: Deutsche Bank
India will be among the fastest growing markets in the world in the next five years with a high GDP growth driven by second generation reforms, Deutsche Bank AG said in a recent research report.
"Sectors such as insurance are expected to be liberalised, an aggressive privatisation programme is being planned and even infrastructure may benefit from the introduction of a new regulatory environment," the report, prepared by South Asia Economist Sanjeev Sanyal said.
"All this will allow the economy to sustain an average 6.0-7.5 per cent GDP growth per annum in the next five years, among the fastest growing markets in the world" it said.
India's parliament approved the insurance bill this week which will open the sector to private and foreign players. The bill will become a law after the President gives his approval.
The changes in the economy will be rewarded with at least one sovereign upgrade in the next six months, Deutsche Bank said. International rating agency Moody's Investors Service raised the outlook to positive from stable for India's Ba2 ratings on foreign and domestic currency debt in October. Standard & Poor's outlook is stable on India's BB foreign currency rating.
Appetite for Indian assets had increased after the relative political stability and the cyclical upturn in the economy, the Deutsche Bank report said. "Yet the country had failed to live up to potential and problems such as the fiscal deficit and poor infrastructure remain," it said. It said the most potent risk is the fiscal deficit with the combined deficit of the states and central governments at 8.5 percent of GDP.
Financing of the deficit was available now but this was unsustainable in the long run and the solution lay in introducing a value-added tax on the services sector and reducing implicit subsidies by realistic user charges, it added. "There is low risk of balance of payments or banking crises," the report said, adding that inefficiency in the banking sector will keep the costs of intermediation high.
Privatisation will be a key item on the reform agenda amid increased political and social acceptance of the need to privatise the public sector firms. "Capital markets have recovered dramatically this year and market conditions appear ready to accept a large inflow of public sector paper," it said.
Source : MI
Dec 10, 1999 |
