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Indian Party Spolied for Sure, But Not Over

June 19, 2008

In a somewhat bold report written by Citigroup Economists, they are of the view that the Indian Party Sp’OIL’ed for Sure, But It’s Not Over [Reason OIL].

The 40% rise in oil prices since Jan 2008 is key to the direction change seen across all macro variables in India. The pressure could ease a bit from FY10 as new hydrocarbon discoveries come onstream.

Surprising but true – in terms of transport fuels, the Indian consumer is not as subsidized as is generally thought…high taxes are the culprit.

Citi has maintained GDP estimates at 7.7% for FY09 ; but lowered for FY10 from 8.3% to 7.9%. The Rupee likely to remain weak in the near term and with inflation to remain high, Citi sees further monetary tightening in coming months.

Including all the off-balance sheet items as well as the state deficits, India’s combined deficit would come in close to 9% of GDP. This is an area to worry about.

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