Seb Country Analysis 2008 India

India SEB MERCHANT BANKING – COUNTRY RISK ANALYSIS

December 11, 2008

Analyst: Rolf Danielsen. Tel: +46-8-7638392. E-mail: [email protected]

India appears to weather the global crisis better than many peers but will soon see growth fall below trend to less than 6% a year. However, some observers express concerns following political turmoil in Pakistan and the terrorist attack in Mumbay, which the government sees related to its neighbour.

Country Risk Analysis

change

dêçïíÜ=ÇÉÅÉäÉê~íÉë=Äìí=ëí~óë=ÅäÉ~ê=çÑ=~åó=Åçää~éëÉ=ëÅÉå~êáçK==cêçã=íÜÉ=êÉÅçêÇ= VIUB=ÖêçïíÜ=ê~íÉ=~ÅÜáÉîÉÇ=áå=OMMSI=fåÇá~Ûë=éÉêÑçêã~åÅÉ=Ü~ë=ãçÇÉê~íÉÇ=~åÇ=áë=äáâÉäó= íç=éçëí=åç=ãçêÉ=íÜ~å=TIUB=áå=íÜÉ=ÅìêêÉåí=óÉ~êK=páåÅÉ=íÜÉ=ëìããÉêI=áåÇáÅ~íçêë=çÑ= áåÇìëíêá~ä=~Åíáîáíó=Ü~îÉ=ëÜçïå=ëáÖåë=çÑ=íê~áäáåÖ=~ë=áåÇìëíêá~ä=áåîÉëíãÉåíë=áå=é~êíáÅìä~ê= Ü~îÉ=êÉ~ÅíÉÇ=íç=ÄÉ~êáëÜ=áåîÉëíçê=ëÉåíáãÉåí=êÉÑäÉÅíÉÇ=áå=íÜÉ=ëíÉÉé=Ñ~ää=çÑ=fåÇá~Ûë=ëíçÅâ= ã~êâÉíI=ïÜáÅÜ=Ü~ë=ãçîÉÇ=áå=é~ê~ääÉä=ïáíÜ=ëÉîÉê~ä=çíÜÉê=ÉãÉêÖáåÖ=ã~êâÉíë=ëÜ~êÉ= éêáÅÉëK=^í=íÜÉ=ë~ãÉ=íáãÉ=Éñéçêí=ÖêçïíÜ=Ü~ë=ïÉ~âÉåÉÇ=~ë=ã~áå=ã~êâÉíëI=åçí=çåäó=áå= íÜÉ=rp=~åÇ=bìêçéÉI=Äìí=~äëç=áå=`Üáå~=~åÇ=íÜÉ=êÉëí=çÑ=^ëá~=Ü~îÉ=äçëí=ëíÉ~ãI=ïÜáäÉ== éäìããÉíáåÖ=çáä=éêáÅÉ=Ü~ë=ëÉåí=ÇÉã~åÇ=çå=~=Ççïåï~êÇ=é~íÜ=~äëç=áå=íÜÉ=jáÇÇäÉ=b~ëí= ïÜÉêÉ=íÜÉ=r^b=Ü~Ç=ÄÉÅçãÉ=fåÇá~Ûë=ã~áå=Éñéçêí=ã~êâÉíK==qÜÉ=éáÅíìêÉ=ÅçìäÇ=Ü~îÉ= ÄÉÉå=ïçêëÉ=Äìí=Ñçê=ëíáää=êÉëáäáÉåí=ÇçãÉëíáÅ=ÅçåëìãÉê=ÇÉã~åÇ=ÄçäëíÉêÉÇ=Äó=~=ëíêçåÖ= Ü~êîÉëí=áå=~ÖêáÅìäíìêÉI=íÜÉ=äáîÉäáÜççÇ=çÑ=íÜÉ=ã~àçêáíó=çÑ=fåÇá~å=ÜçìëÉÜçäÇëK=== = = içïÉê=çáä=éêáÅÉë= GDP growth Åçåí~áå=íÜÉ=ÅìêêÉåí= 10% ~ÅÅçìåí=ÇÉÑáÅáíK==qÜÉ= êáëâ=çÑ=~å= 8% ìåÅçåíêçääÉÇ=êáëÉ=çÑ= íÜÉ=ÅìêêÉåí=~ÅÅçìåí= 6% ÇÉÑáÅáí=ëáåÅÉ=ä~íÉ=OMMT= 4% ~ë=íÜÉ=áãéçêí=Äáää= íÜêÉ~íÉåÉÇ=íç= 2% çîÉêí~âÉ=íÜÉ=Éñéçêí= êÉîÉåìÉë=Äó=~=ïáÇÉ= 0% ã~êÖáåI=~ééÉ~êë=åçï= 2002 2004 2006 2008 íç=Ü~îÉ=ãçÇÉê~íÉÇK== tÜáäÉ=ÜáÖÜ=çáä=éêáÅÉë= Real growth (% ) Forecast ~í=íÜÉ=ÄÉÖáååáåÖ=çÑ= OMMU=ïáää=ÅäÉ~êäó=áãé~áê=íÜÉ=íê~ÇÉ=Ä~ä~åÅÉ=Ñçê=íÜÉ=ÅìêêÉåí=óÉ~êI=íÜÉ=íêÉåÇ=íçï~êÇ=~å= ìåëìëí~áå~ÄäÉ=ÇÉîÉäçéãÉåí=Ü~ë=äáâÉäó=ÄÉÉå=~êêÉëíÉÇK=qÜ~í=áë=ä~êÖÉäó=ÇìÉ=íç=íÜÉ=íìêåJ ~êçìåÇ=áå=ÖäçÄ~ä=éêáÅÉë=Ñçê=çáä=~åÇ=çíÜÉê=ê~ï=ã~íÉêá~äë=Äìí=çåJÖçáåÖ=Éñé~åëáçå=çÑ= fåÇá~Ûë=ëÉêîáÅÉë=ëÉÅíçê=Ü~ë=~äëç=éêçîÉÇ=ãçêÉ=êÉëáäáÉåí=íç=íÜÉ=íìêãçáä=áå=íÜÉ=ÖäçÄ~ä= ÉÅçåçãó=íÜ~å=ÉñéÉÅíÉÇK=qÜÉ=ÅçåíáåìÉÇ=áåÑäçï=çÑ=êÉãáíí~åÅÉëI=áå=é~êí=êÉÅçêÇÉÇ=~ë= Å~ëÜJïáíÜÇê~ï~äë=Ñêçã=íÜÉ=ä~êÖÉ=ëíçÅâ=çÑ=åçåJêÉëáÇÉåíá~ä=fåÇá~å=ÇÉéçëáíë=ïáíÜ= ÇçãÉëíáÅ=Ä~åâëI=Ü~ë=~äëç=ÜÉäéÉÇ=ëí~ÄáäáòÉ=íÜÉ=ÅìêêÉåí=~ÅÅçìåí=Ä~ä~åÅÉK==kÉîÉêíÜÉäÉëëI= important

your attention is drawn to the statement on the back cover of this report which affects your rights.

SEB Merchant Banking Country Risk Analysis December 11, 2008

% of GDP

íÜÉ=ÅìêêÉåí=~ÅÅçìåí=ÇÉÑáÅáí=áë=ëÉí=íç=~äãçëí=íêáéäÉ=íç=APQ=ÄáääK=áå=OMMU=EÉèìáî~äÉåí=íç=PB= çÑ=damFI=ìé=Ñêçã=ANO=ÄáääK=áå=OMMTK==qÜ~í=áåÅêÉ~ëÉ=íçÖÉíÜÉê=ïáíÜ=~=êÉîÉêë~ä=çÑ=~í=äÉ~ëí= ANM=ÄáääK=Ñêçã=íÜÉ=ATM=ÄáääK=çÑ=~ÅÅìãìä~íÉÇ=éçêíÑçäáç=áåÑäçïë=çîÉê=íÜÉ=OMMPJOMMT= éÉêáçÇI=ÅçìäÇ=Ü~îÉ=éêÉëÉåíÉÇ=~=ã~àçê=éêçÄäÉã=íç=íÜÉ=Ä~ä~åÅÉ=çÑ=é~óãÉåíëK==cçêÉáÖå= ÇáêÉÅí=áåîÉëíçêë=Ü~îÉ=ÅçãÉ=íç=íÜÉ=êÉëÅìÉI=ÜçïÉîÉêI=ÇçìÄäáåÖ=íÜÉáê=íçí~ä=åÉíJáåÑäçïë=íç= ~å=Éëíáã~íÉÇ=AOO=ÄáääK=áå=OMMUKI=íÜìë=ÜÉäéáåÖ=ÅçåëçäáÇ~íÉ=íÜÉ=Ä~ä~åÅÉ=çÑ=é~óãÉåíë=~åÇ= êÉëíçêÉ=Å~äã=áå=íÜÉ=ÑçêÉñ=ã~êâÉíK=== = qÜÉ=êìéÉÉ= Current account deficit ïÉ~âÉåë=Ñêçã= ìåëìëí~áå~ÄäÉ=ÜáÖÜëK= 2% få=ãáÇJOMMUI=íÜÉ= 1% fåÇá~å=ÑçêÉáÖå= 0% ÉñÅÜ~åÖÉ=ã~êâÉí= íìêåÉÇ=Ñêçã=~å= -1% ìåÇÉêäóáåÖ=ëìêéäìë=íç= -2% ~=ÇÉÑáÅáí=éçëáíáçåK== -3% qÜ~í=Å~ãÉ=çå=íÜÉ= ÜÉÉäë=çÑ=~=ëìêÖÉ=áå= -4% éçêíÑçäáç=~åÇ=çíÜÉê= 2003 2005 2007 2009 Å~éáí~ä=áåÑäçïë=áå= OMMT=~åÇ=áå=É~êäó= Current account forecast OMMUK==qÜÉó=Ü~Ç=äáÑíÉÇ= íÜÉ=êìéÉÉ=íç=êÉÅçêÇ=ÜáÖÜëI=ÄêÉ~ÅÜáåÖ=íÜÉ=QM=fko=éÉê=rpA=äÉîÉä=åçíïáíÜëí~åÇáåÖ=ä~êÖÉ= ÅÉåíê~ä=Ä~åâ=áåíÉêîÉåíáçåë=íç=ëíÉã=íÜÉ=êáëÉK==få=nOI=áåîÉëíçê=ëÉåíáãÉåí=Öê~Çì~ääó= ÅÜ~åÖÉÇ=~åÇ=ëìÄëÉèìÉåíäó=ÑçêÅÉÇ=íÜÉ=ÅÉåíê~ä=Ä~åâ=çå=íÜÉ=ÇÉÑÉåëáîÉK===^ë=áå=çíÜÉê= ÉãÉêÖáåÖ=ã~êâÉíë=íÜÉ=éêÉëëìêÉ=áåÅêÉ~ëÉÇ=ëÜ~êéäó=áå=íÜÉ=Ñ~ääI=êÉëéçåÇáåÖ=íç=íÜÉ=åÉï= Äçìí=çÑ=Ñáå~åÅá~ä=íìêÄìäÉåÅÉ=çêáÖáå~íáåÖ=Ñêçã=íÜÉ=rpK==qÜÉ=ÅÉåíê~ä=Ä~åâ=Ü~Ç=åçï=íç= ëìééçêí=íÜÉ=êìéÉÉ=Ñêçã=ÇêçééáåÖ=íçç=Ñ~ëí=Äó=ëÉääáåÖ=~å=Éëíáã~íÉÇ=AQR=ÄáääK==^ë=~= êÉëìäíI=ëáåÅÉ=íÜÉ=ÄÉÖáååáåÖ=çÑ=íÜÉ=óÉ~ê=ÅÉåíê~ä=Ä~åâ=êÉëÉêîÉë=Ü~îÉ=çå=~=åÉí=Ä~ëáë= ÇÉÅäáåÉÇ=~å=Éëíáã~íÉÇ=APM=ÄáääI=çÑ=ïÜáÅÜ=~=íÜáêÇ=ã~ó=êÉÑäÉÅí=î~äì~íáçå=ÅÜ~åÖÉë=ÇìÉ=íç= ÅÜ~åÖÉë=çÑ=Åêçëë=ÉñÅÜ~åÖÉ=ê~íÉëK==lîÉê=êÉÅÉåí=ïÉÉâë=íÜÉ=éêÉëëìêÉ=~ééÉ~êë=íç=Ü~îÉ= ~Ä~íÉÇ=äÉ~îáåÖ=íÜÉ=ÅÉåíê~ä=Ä~åâ=ïáíÜ=~êçìåÇ=AORM=Äáää=çÑ=ÑçêÉáÖå=ÉñÅÜ~åÖÉI=ëíáää=~å= ~ÇÉèì~íÉ=êÉëÉêîÉ=äÉîÉä=ïÜáÅÜ=áë=ÉåçìÖÜ=íç=ÅçîÉê=NM=ãçåíÜë=çÑ=áãéçêíë=çê=íÜÉ=íçí~ä=çÑ= çìíëí~åÇáåÖ=ÑçêÉáÖå=ÇÉÄíK=eçïÉîÉêI=fåÇá~Ûë=êÉÅÉåí=ÉñéÉêáÉåÅÉ=ïáíÜ=îçä~íáäÉ=Å~éáí~ä= Ñäçïë=Ü~ë=íêáÖÖÉêÉÇ=~=ÜÉ~äíÜó=ÇÉÄ~íÉ=~Äçìí=íÜÉ=ãÉêáíë=çÑ=ã~áåí~áåáåÖ=~=êÉÖáãÉ=çÑ= Å~éáí~ä=êÉÖìä~íáçåë=~åÇ=~=èìáíÉ=ÅäçëÉäó=ã~å~ÖÉÇ=ÉñÅÜ~åÖÉ=ê~íÉK==== = fåÑä~íáçå=ÅççäëW==qÜÉ=ÇáÑÑáÅìäíó=áå=ëÜÉäíÉêáåÖ=ÇçãÉëíáÅ=äáèìáÇáíó=Ñêçã=ÑçêÉáÖå= Å~éáí~ä=Ñäçïë=ÅçåíêáÄìíÉÇ=íç=~å=áåÅáéáÉåí=çîÉêÜÉ~íáåÖ=áå=OMMT=~åÇ=É~êäó=OMMU=ïÜáÅÜ= íÜÉ=ÅÉåíê~ä=Ä~åâ=ÉîÉåíì~ääó=ÅçìåíÉêÉÇ=Äó=ê~áëáåÖ=Ä~åâëÛ=êÉëÉêîÉ=êÉèìáêÉãÉåíë=~åÇ= ÜáâáåÖ=áåíÉêÉëí=ê~íÉëK==eçïÉîÉêI=áå=É~êäó=OMMU=ìåÇÉê=íÜÉ=áåÑäìÉåÅÉ=çÑ=ëç~êáåÖ=ÉåÉêÖó= ~åÇ=ÅçããçÇáíó=éêáÅÉë=Ñêçã=~Äêç~ÇI=íÜÉ=ÇçãÉëíáÅ=éêáÅÉ=éêÉëëìêÉ=ÅçåíáåìÉÇ=ìåíáä=íÜÉ= ê~íÉ=çÑ=áåÑä~íáçå=êÉ~ÅÜÉÇ=~å=~ååì~äáòÉÇ=NPB=áå=gìäóK==qÜ~í=ï~ë=áå=ëéáíÉ=çÑ=ÖçîÉêåãÉåí= ÉÑÑçêíë=íç=Åçåíêçä=ÇçãÉëíáÅ=ÉåÉêÖó=éêáÅÉë=íÜêçìÖÜ=ëìÄëáÇáÉë=~åÇ=~Çãáåáëíê~íáîÉ= ãÉ~ëìêÉë=ÄÉÑçêÉ=ÇçãÉëíáÅ=ÑìÉä=éêáÅÉë=ÉîÉåíì~ääó=ïÉêÉ=ê~áëÉÇ=íç=íÜÉ=Éèìáî~äÉåí=çÑ= ATMLÄ~êêÉä=çÑ=ÅêìÇÉ=çáä=áå=gìåÉK===páåÅÉ=íÜÉå=íÜÉ=ÉÑÑÉÅíë=çÑ=íáÖÜíÉê=ãçåÉí~êó=éçäáÅáÉëI= íÜÉ=íìêåJ~Äçìí=çÑ=Å~éáí~ä=ÑäçïëI=íÜÉ=êÉÇìÅíáçå=çÑ=áåíÉêå~íáçå~ä=éêáÅÉë=áåÅäìÇáåÖ=çÑ= ÑççÇ=ëíìÑÑ=~åÇ=íÜÉ=ÖççÇ=Ü~êîÉëí=áå=~ÖêáÅìäíìêÉ=Ü~îÉ=áåíÉê~ÅíÉÇ=íç=Ç~ãé=ÇçãÉëíáÅ= éêáÅÉ=ÇÉîÉäçéãÉåíëK==i~íÉëí=ëí~íáëíáÅë=ëÜçï=íÜÉ=áåÑä~íáçå=ê~íÉ=Ñ~ääáåÖ=ëÜ~êéäó=íçï~êÇ= UB=óÉ~ê=çå=óÉ~ê=EvçvFI=ÜÉäéáåÖ=êÉëíçêÉ=~=êÉ~ëçå~ÄäÉ=áåíÉêÉëí=ê~íÉ=äÉîÉä=áå=êÉ~ä=íÉêãëI= ~äÄÉáí=ëíáää=åÉÖ~íáîÉ=~ÑíÉê=íÜÉ=ÅÉåíê~ä=Ä~åâ=É~ëÉÇ=ãçåÉí~êó=éçäáÅáÉë=áå=êÉëéçåëÉ=íç=íÜÉ= êÉÅÉåí=áåíÉêå~íáçå~ä=äáèìáÇáíó=ëèìÉÉòÉK==få=ÖÉåÉê~ä=çåÉ=ÅçìäÇ=ÄÉ=ëìêéêáëÉÇ=~Äçìí=íÜÉ= 2

SEB Merchant Banking Country Risk Analysis December 11, 2008

% change pa.

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1

P olicy Rates, Repo Cut-off Rat e Source: Reuters Ec oWin

Draft Report of the Committee on Financial Sector Reforms, Government of India Planning Commission, New Delhi, 2007 3

SEB Merchant Banking Country Risk Analysis December 11, 2008

ÖÉåÉê~ä=ÉäÉÅíáçåë=áå=^éêáä=OMMVK==qÜÉ=ä~ííÉê=áåÅäìÇÉë=~äëç=ãìÅÜ=ÇáëéìíÉÇ=ÇÉÄí=êÉäáÉÑ=Ñçê= Ñ~êãÉêë=ïÜáÅÜ=ïáää=Åçëí=íÜÉ=ÖçîÉêåãÉåí=ëçãÉ=MIQB=çÑ=dam=~åÇ=ï~ë=ÇÉêáÇÉÇ=~ë= éçéìäáëí=Äó=íÜÉ=çééçëáíáçåK=tÜ~í=ã~ó=ãáíáÖ~íÉ=íÜÉ=Ñáå~ä=Ñ~ääçìíI=ÜçïÉîÉêI=~êÉ=íÜÉ= êÉÅÉåí=Çêçé=áå=íÜÉ=çáä=éêáÅÉI=ãìÅÜ=ÄÉäçï=íÜÉ=éêÉëÉåí=êÉÖìä~íÉÇ=éìãé=éêáÅÉ=çÑ= ATMLÄ~êêÉä=ïÜáÅÜ=ëÜçìäÇ=äçïÉê=íÜÉ=ÖçîÉêåãÉåíÛë=çÑÑJÄ~ä~åÅÉ=ÉñéÉåëÉëK==fí=ã~ó=~äëç= ÄÉ=ìåÑ~áê=íç=Åçãé~êÉ=íÜÉ=OMMULMV=ÄìÇÖÉí=ïáíÜ=íÜÉ=OMMTLMUI=~ë=íÜÉ=ëíêçåÖ=êÉëìäí=çÑ=íÜÉ= ä~ííÉê=ï~ë=áå=é~êí=íÜ~åâë=íç=çåÉJçÑÑ=éêçÑáíë=Ñêçã=éêáî~íáò~íáçå=ë~äÉëK==tÉ=åçíÉ=íÜ~í= ÇÉëéáíÉ=íÜÉ=áåÅêÉ~ëÉ=çÑ=íÜÉ=ÇÉÑáÅáí=áå=OMMUJMVI=íÜÉ=ÖçîÉêåãÉåí=ÇÉÄí=ê~íáç=ïáää=ÅçåíáåìÉ= Ñ~ääáåÖ=íç=TPB=çÑ=dam=Ñêçã=TVB=çÑ=dam=çÑ=íÜÉ=éêÉÅÉÇáåÖ=óÉ~êK== = eçï=ïáää=fåÇá~=ãÉÉí=íÜÉ=çåÖçáåÖ=ÉÅçåçãáÅ=~åÇ=Ñáå~åÅá~ä=ïçêäÇ=Åêáëáë\==lîÉê= íÜÉ=êÉÅÉåí=íïç=ÇÉÅ~ÇÉëI=~åÇ=áå=íÜÉ=éÉêáçÇ=OMMPJOMMUI==fåÇá~=Ü~ë=ÄÉÅçãÉ=~=ãìÅÜ=ãçêÉ= çéÉå=ÉÅçåçãóK==“léÉååÉëëÒ=åçï=ëí~åÇë=~í==çÑ=ãçêÉ=íÜ~å=ORB=EÅçìåíÉÇ=~ë=Éñéçêíë== êÉä~íáîÉ=íç=damFK=qÜ~í=áë=äçïÉê=íÜ~å=`Üáå~Ûë=PTB=Äìí=~äãçëí=íïáÅÉ=~ë=ÜáÖÜ= “çéÉååÉëëÒ=~ë=íÜÉ=rpK=kÉîÉêíÜÉäÉëëI=fåÇá~Ûë=ÇáîÉêëáÑáÅ~íáçåI=áåÅäìÇáåÖ=áåíç=ëÉêîáÅÉëI= ~åÇ=Ä~ä~åÅÉÇ=ëíêìÅíìêÉ=çÑ=ÇçãÉëíáÅ=ÇÉã~åÇI=áå=é~êíáÅìä~ê=ÄÉíïÉÉå=Åçåëìãéíáçå=~åÇ= áåîÉëíãÉåíëI=ëÜçìäÇ=ÜÉäé=áí=ïÉ~íÜÉê=íÜÉ=ÇÉÉéÉåáåÖ=ïçêäÇ=Åêáëáë=ÄÉííÉê=íÜ~å=éÉÉêëK== ^ééäóáåÖ=íÜÉ=ÉÅçåçãáÅ=ïçêäÇ=ãçÇÉä=ÇÉîÉäçéÉÇ=Äó=íÜÉ=lbc=ElñÑçêÇ=bÅçåçãáÅëF=ïÉ= ÑáåÇ=íÜ~í=ÉîÉå=áå=~=ïçêëí=Å~ëÉ=ëÅÉå~êáç=dam=ÖêçïíÜ=ëÜçìäÇ=êÉã~áå=èìáíÉ=êçÄìëíI= åÉîÉê=Ñ~ääáåÖ=ÄÉäçï=RIUB=çå=~å=~ååì~ä=Ä~ëáëI=ïÜáäÉ=`Üáå~I=áå=Åçåíê~ëíI=ïáää=Çêçé=íç= ÄÉäçï=RB=ÖêçïíÜ=ê~íÉë=Ñçê=íïç=ëìÄëÉèìÉåí=óÉ~êëK==qÜÉ=ä~ííÉê=êÉéêÉëÉåíë=~=ëíÉÉéÉê= Çêçé=áå=ÖêçïíÜI=íÉëíáÑóáåÖ=íç=`Üáå~Ûë=ÜáÖÜÉê=ÇÉéÉåÇÉåÅÉ=çå=ëéÉÅáÑáÅ=Éñéçêí=ã~êâÉíë= áåÅäìÇáåÖ=ÅçåëìãÉê=ÖççÇë=áå=íÜÉ=lb`a=ÅçìåíêáÉëK=== =

% annual GDP growth

Risk scenarios

India base case

India worst case

China base case

China worst case

10,0 5,0 0,0 2008

2009

2010

2011

China appears more sensitive than India to shocks of a worst case scenario based on a sharp cut-backs in US/EU consumer demand.

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mçäáíáÅ~ä=ÉîÉåíë=ã~ó=ëÜçÅâ=ãçêÉ=íÜ~å=íÜÉó=áãé~ÅíK==qÜÉ=êÉÅÉåí=íÉêêçêáëí=~íí~Åâ=áå= jìãÄ~óI=ïÜáÅÜ=Å~ìëÉÇ=íÜÉ=ÇÉ~íÜ=çÑ=ëÉîÉê~ä=ïÉëíÉêå=ÑçêÉáÖåÉêëI=Ü~ë=ÑçÅìëÉÇ= ~ííÉåíáçå=çå=íÜÉ=ÖÉåÉê~ä=ëÉÅìêáíó=éêçÄäÉãë=çÑ=fåÇá~K==qÜÉó=éêÉî~áä=áå=íÜÉ=ÅçìåíêóJ=ëáÇÉ= ïÜÉêÉI=ÜçïÉîÉêI=íÜÉó=ÅêÉ~íÉ=ãìÅÜ=äÉëë=áåíÉêå~íáçå~ä=ãÉÇá~=êÉ~ÅíáçåëK==pç=Ñ~ê=áå=OMMUI= íÜáë=áåíÉêå~ä=íÉêêçêáëí=~Åíáîáíó=Ü~ë=êÉéçêíÉÇäó=Åä~áãÉÇ=ëÉîÉê~ä=íÜçìë~åÇë=îáÅíáãëK== eçïÉîÉêI=íÜáë=áë=~å=çäÇ=éêçÄäÉãI=áåÅäìÇáåÖ=íÜÉ=ÇÉÅ~ÇÉë=çäÇ=k~ñ~äáíÉ=ãçîÉãÉåí= ïÜáÅÜ=~ÇÜÉêÉë=íç=ëçãÉ=âáåÇ=çÑ=~=Åçããìåáëí=áÇÉçäçÖóK==qÜÉ=î~êáçìë=ÉñíêÉãáëí= ãçîÉãÉåíë=êÉÅêìáí=ã~áåäó=Ñêçã=ã~êÖáå~äáòÉÇ=ÉíÜåáÅ=~åÇ=êÉäáÖáçìë=Öêçìéë=~åÇ=íç= ëçãÉ=ÇÉÖêÉÉ=Ñêçã=íÜÉ=ä~êÖÉ=Å~ëíJäÉëë=ìåÇÉêÅä~ëë=áå=íÜÉ=Åçìåíêó=ëáÇÉK==få=Åçåíê~ëí=íç= íÜÉ=ãçêÉ=Ü~ïâáëÜ=~ííáíìÇÉ=çÑ=áíë=éêÉÇÉÅÉëëçêI=íÜÉ=éêÉëÉåí=ÖçîÉêåãÉåí=Ü~ë=éìêëìÉÇ=~= éçäáÅó=çÑ=áåÅäìëáçå=íçï~êÇ=íÜÉëÉ=ÉäÉãÉåíë=çÑ=ëçÅáÉíóK=kçïI=íÜÉ=jìãÄ~ó=~íí~Åâë= ÅçìäÇ=èìÉëíáçå=íÜáë=ëçÑíJ~ééêç~ÅÜ=~åÇ=é~îÉ=íÜÉ=ï~ó=Ñçê=Ü~êÇJäáåÉ=~ííáíìÇÉë=áå=íÜÉ= ÑìíìêÉK==oÉÅÉåí=ÄóJÉäÉÅíáçåëI=ÜçïÉîÉêI=ïÉêÉ=ìåÉñéÉÅíÉÇäó=ïçå=Äó=íÜÉ=áåÅìãÄÉåíI= áåÇáÅ~íáåÖ=íÜ~í=íÜÉ=ÉäÉÅíçê~íÉ=ã~ó=åçí=Ñ~îçê=~=ÅÜ~åÖÉK===^é~êí=Ñêçã=íÜ~í=áëëìÉI=~= Åç~äáíáçå=ÖçîÉêåãÉåí=Ñêçã=íÜÉ=éêÉëÉåí=êáÖÜí=çÑ=ÅÉåíÉê=çééçëáíáçå=ïçìäÇ=ìåäáâÉäó= 4

SEB Merchant Banking Country Risk Analysis December 11, 2008

ÜÉê~äÇ=~=ëÜ~êé=ÅÜ~åÖÉ=áå=ÉÅçåçãáÅ=éçäáÅáÉë=áå=éêáåÅáéäÉ=Äìí=ïçìäÇ=éêçÄ~Ääó=ëí~åÇ=~= ÄÉííÉê=ÅÜ~åÅÉ=çÑ=áãéäÉãÉåíáåÖ=íÜÉãK== = m~âáëí~åI=fåÇá~Ûë=çäÇ=åÉãÉëáëW=fåÇá~Ûë=Åä~áã=íÜ~í=Öêçìéë=Ñêçã=m~âáëí~å=ïÉêÉ= ÜÉ~îáäó=áåîçäîÉÇ=áå=íÜÉ=jìãÄ~ó=~íí~Åâë=~åÇ=~ääÉÖÉÇäó=êÉÅÉáîÉÇ=ëìééçêí=Ñêçã= ÉäÉãÉåíë=ïáíÜáå=m~âáëí~åÛë=ëÉÅìêáíó=ëÉêîáÅÉëI=ëÉÉã=íç=ÄÉ=Ö~íÜÉêáåÖ=ëìééçêí=Ñêçã=rp= ~åÇ=çíÜÉê=ÅçìåíêáÉëK==qÜ~í=ÅçìäÇ=çåÅÉ=~Ö~áå=ê~áëÉ=ÄçêÇÉê=íÉåëáçåë=áå=íÜÉ=ÇáëéìíÉÇ= éêçîáåÅÉ=çÑ=h~ëÜãáêI=~åÇ=áå=íÜÉ=ïçêëí=çÑ=Å~ëÉë=çìíêáÖÜí=ï~ê=ÄÉíïÉÉå=íÜÉ=íïç= åìÅäÉ~êJ~êãÉÇ=åÉáÖÜÄçêëK==eçïÉîÉêI=íÜáë=íÉåëáçå=Ü~ë=ÄÉÉå=çå=~åÇ=çÑÑ=Ñçê=ã~åó= ÇÉÅ~ÇÉë=~åÇ=ïÉ=ÄÉäáÉîÉ=íÜ~í=ëìÅÜ=~=ëáíì~íáçå=ã~ó=ÅçåíáåìÉ=Ñçê=~=äçåÖ=íáãÉ=ëíáääI=ïÜáäÉ= åÉîÉê=ÖÉííáåÖ=çìí=çÑ=ÅçåíêçäK==qÜÉ=ïçêëí=ÉÑÑÉÅí=ïçìäÇ=éêçÄ~Ääó=ÄÉ=íç=Çáëíê~Åí=íÜÉ= ~ííÉåíáçå=çÑ=íÜÉ=fåÇá~å=ÖçîÉêåãÉåí=Ñêçã=çíÜÉê=Öç~äëI=ëìÅÜ=~ë=íÜÉ=åÉÉÇ=íç=ÅçåíáåìÉ= ÉÅçåçãáÅ=êÉÑçêãë=áåÅäìÇáåÖ=çÑ=íÜÉ=Ñáå~åÅá~ä=ëÉÅíçêK== JJGJJ= fåÇá~Ûë=ÖêçïíÜ=Ü~ë=Ñ~ÇÉÇ=Åçãé~êÉÇ=ïáíÜ=áíë=ÄäáëíÉêáåÖ=éÉêÑçêã~åÅÉ=çîÉê=ëÉîÉê~ä= óÉ~êëI=Äìí=ïáää=äáâÉäó=êÉã~áå=êÉ~ëçå~Ääó=ëíêçåÖ=~í=~=äÉîÉä=ÜáÖÜ=ÉåçìÖÜ=íç=ÑÉåÇ=çÑÑ= êáëâë=çÑ=ãçìåíáåÖ=ëçÅá~ä=íÉåëáçåëK=qÜ~í=ë~áÇI=êÉÅÉåí=ÉîÉåíë=~äëç=éêçîÉ=íÜ~í=fåÇá~=áë= åçí=áãéÉêîáçìë=íç=ÇÉîÉäçéãÉåíë=çÑ=íÜÉ=çìíëáÇÉ=ïçêäÇ=~åÇ=íÜ~í=éçäáíáÅ~ä=ÉîÉåí=êáëâ=áë= åÉîÉê=Ñ~ê=~ï~óK=^ë=çíÜÉê=ÉãÉêÖáåÖ=ã~êâÉí=ÅçìåíêáÉë=fåÇá~=ïáää=ëìÑÑÉê=Ñêçã=íÜÉ= ÅçåíáåìÉÇ=ã~äÑìåÅíáçåáåÖ=áåíÉêå~íáçå~ä=Å~éáí~ä=ã~êâÉíë=~åÇ=íÜÉ=ëäçïÇçïå=áå=Éñéçêí= ã~êâÉíë=Äìí=ã~ó=~äëç=ÄÉåÉÑáí=Ñêçã=äçïÉê=ÉåÉêÖó=~åÇ=ê~ï=ã~íÉêá~ä=éêáÅÉë=áå=íÜÉ=åÉ~ê= íÉêãK=tÉ=~äëç=ÄÉäáÉîÉ=íÜ~í=íÜÉ=äáâÉäó=ëÉíJÄ~Åâ=íç=íÜÉ=ÑáëÅ~ä=ÅçåëçäáÇ~íáçå=éêçÅÉëë=íÜáë= ÅìêêÉåí=ÑáëÅ~ä=óÉ~ê=ÉåÇáåÖ=j~êÅÜ=OMMV=ïáää=ÄÉ=ÅçêêÉÅíÉÇ=Äó=íÜÉ=åÉï=ÖçîÉêåãÉåí= ÑçääçïáåÖ=ÉäÉÅíáçåë=áå=^éêáä=OMMVI=êÉÖ~êÇäÉëë=ïÜç=ïáåëK== qÜÉ=ëÉÅìêáíó=éêçÄäÉãëI=~ë=íê~ÖáÅ~ääó=áääìëíê~íÉÇ=Äó=íÜÉ=íÉêêçêáëí=~íí~Åâë=áå= jìãÄ~ó=ä~ëí=kçîÉãÄÉêI=áë=~=äçåÖJëí~åÇáåÖ=áëëìÉI=ïÜáÅÜ=çÅÅ~ëáçå~ääó=êÉ~ÅÜÉë=íÜÉ= ÜÉ~ÇäáåÉë=çÑ=íÜÉ=áåíÉêå~íáçå~ä=éêÉëë=ïÜÉåÉîÉê=áí=çÅÅìêë=áå=fåÇá~å=ãÉíêçéçäáí~å=ÅáíáÉëK= ^ë=ëìÅÜI=ïÉ=Çç=åçí=ëÉÉ=~=éêáåÅáé~ääó=åÉï=êáëâ=Ñêçã=íÜáë=ÉîÉåí=ìåäÉëë=áí=áë=ÑçääçïÉÇ=Äó= ~=ï~îÉ=çÑ=çêÖ~åáòÉÇ=~åÇ=éçëëáÄäó=ëí~íÉ=ëéçåëçêÉÇ=íÉêêçêáëã=çêáÖáå~íáåÖ=Ñêçã= ~Äêç~ÇK==^í=íÜáë=éçáåí=ïÉ=Çç=åçí=ÑáåÇ=íÜáë=êáëâ=Ü~îáåÖ=êÉ~ÅÜÉÇ=~å=~ä~êãáåÖ=äÉîÉä=óÉíK= JJ==lîÉê=íÜÉ=ä~ëí=óÉ~ê=íÜÉêÉ=Ü~îÉ=ÄÉÉå=åç=ã~àçê=ÉñíÉêå~ä=ê~íáåÖ=ÅÜ~åÖÉëI=ÉñÅÉéí=íÜ~í= çåÉ=ê~íáåÖ=~ÖÉåÅó=Ü~ë=éä~ÅÉÇ=äçÅ~ä=ëçîÉêÉáÖå=ÇÉÄí=áëëìÉë=çå=åÉÖ~íáîÉ=çìíäççâK==

Key ratios

2008

mçéìä~íáçå=EãáääáçåëF

NMSP

Resilience 12 10 8

GDP/capita ($)

942

GDP (change)

8%

6

Macro balance

4

Liquidity

2 0

Inflation

7%

Curr.acc. balance/GDP

-3%

Reserves/imports (months) Budget balance/GDP(*)

-3%

Government debt/GDP(*)

61%

bñíÉêå~ä=ê~íáåÖëW= cáíÅÜW=___J= pCmW=___J

mÉÉêëW oìëëá~= `Üáå~= bÖóéí=

Absence of event risk

0

India

Information

Average EM

Russia

Graph: India's risk profile like Russia's shows strengths on liquidity and infornation, but other parts of the pentagon fall in line with or within average, meaning worse. Our estimate of event risk includes renewed risk of instability in neighboring Pakistan.

(*) Central government only

===

= = 5

SEB Merchant Banking Country Risk Analysis December 11, 2008

Key data: 2003 2004 2005 2006 2007 2008 2009 2010 GDP (bill. US$) 530 615 718 806 1012 1116 1198 1426 GDP/capita (US$) 482 551 633 701 866 942 996 1169 GDP (change) 7,4% 7,2% 9,1% 9,8% 9,3% 7,8% 6,5% 7,7% Investments/GDP 26% 29% 31% 33% 35% 35% 36% 37% Budget balance/GDP* -6,1% -4,5% -4,5% -3,7% -3,0% -3,3% -3,2% -2,9% Govt debt/GDP** 66% 66% 66% 65% 62% 61% 61% 60% CPI inflation (%) 3,7% 3,6% 4,5% 6,0% 6,5% 7,3% 5,7% 3,8% Money demand (%) 9,1% 11,1% 10,9% 13,5% 15,3% 13,2% 13,1% 11,7% Stock prices 3859 5567 7396 11442 15535 Interest rates 7,1% 6,2% 6,1% 6,9% 7,7% 7,9% 5,6% 6,3% Exch. Rate ($) 47 45 44 45 41 43 46 43 Trade/GDP (%) 26% 30% 35% 38% 38% 43% 44% 42% Oil price (Brent) $29 $38 $54 $65 $73 $96 $50 $53 Millions US $ Export of goods 60 895 77 939 102 175 122 963 151 331 179 992 198 523 229 890 Imports of goods 75 537 105 975 149 430 185 041 230 468 301 677 328 183 371 498 Other: 23 415 28 817 36 970 52 549 67 027 87 981 96 409 109 150 Current account 8 773 781 -10 285 -9 529 -12 110 -33 704 -33 251 -32 458 (% of GDP) 1,7% 0,1% -1,4% -1,2% -1,2% -3,0% -2,8% -2,3% FDI 2 444 3 592 4 628 6 820 10 094 20 372 10 889 11 617 Loan repayments -14 653 -15 874 -17 809 -10 646 -22 046 -27 719 -30 876 -32 486 Net other capital flows 29 543 43 190 42 183 36 195 92 545 106 196 55 323 76 526 Balance of payments 26 107 31 689 18 717 22 840 68 483 65 145 2 086 23 199 NRU=NNU OOS=SNN OVN=TRR OVP=UON PNT=MOM UQ=UTM NNS=RRV NPR=OTS Reserves Total debt 109 917 120 055 123 596 141 845 178 677 216 041 228 460 234 356 o/w short term debt 4 685 6 593 8 314 10 777 14 054 17 872 21 415 23 056 Sources: Oxford Economics and SEB estimates. *) Excludes central government off-budget transactions. **) Excludes regional states debt (about 14%/GDP). Rating history Fitch (eoy) S&P (eoy) Type of government: Next elections Other: Latest PC deal Latest IMF arrangements

BB BB+ BB BB Parliamentary Democracy 2009

BB+ BB+

BBBBB+

BBBBBB-

None 1993/SBA S to c k e x c h a n g e , T A IE X 5 0

0 9 8 7 6 5 4 3 2 1 0 9

Index

USD/INR

E x c h a n g e ra te 5 4 4 4 4 4 4 4 4 4 4 3

00

01

02

03

04

05

06

07

1200 1100 1000 900 800 700 600 500 400 300 200 100

0 0 0 0 0 0 0 0 0 0 0 0

08

00

01

02

03

04

05

06

S o u r c e : R e u t e r s E c o W in

08

B S E 1 0 0 : p /e r a tio 40

300

35

250

30

200

Ratio

USD (billions)

F o re ig n R e s e r v e s 350

150

25 20

100

15

50 0

07

S o u r c e : R e u te r s E c o W i n

10 00

01

02

03

04

05

06

07

08

00

S o u r c e : R e u te rs E c o W i n

01

02

03

04

05

06

07

08

S o u rc e : R e u te rs E c o W in

6

=

SEB Merchant Banking Country Risk Analysis December 11, 2008

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7