India country risk outlook

04 September 2019

India country risk outlookIndia will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.

The re-election of Prime Minister Narendra Modi in May 2019 consolidates the mandate of the Bharatiya Jana Party (BJP) for a second term. The government will ensure policy continuity, enacting economic reforms that will support a rebound in domestic demand over the coming quarters.

Security Environment

In August 2019, India revoked Article 370 of the constitution, which granted special autonomous privileges to Jammu and Kashmir.

The revocation of Article 370 means Kashmir will no longer have a separate constitution, and all Indian laws will be automatically applicable to Kashmir.

The government also plans to break up the state into two smaller, federally administered territories.

This is likely to increase the risk of interstate war with Pakistan, including artillery exchanges and Indian airstrikes.

On August 5, the Indian government moved another 8,000 paramilitary troops to the line of control (LoC).

On August 9, 2019, the Indian navy was placed on high operational alert, and both India and Pakistan have flown combat air patrols in the Kashmir region.

Although official intent for a military escalation is low, these measures underscore the risk of accidental military escalation along the LoC.

Any escalation would likely remain contained within Kashmir and both sides would probably focus on military targets, as opposed to critical infrastructure, before seeking de-escalation.

India country risk outlookThe reorganization of Jammu and Kashmir will likely drive recruitment for Pakistan based, indigenous, and transnational militant groups, mainly Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM).

There is a heightened risk of attacks against Indian security forces in Kashmir in the next month or two.

Indian businesses reportedly seeking to invest in Kashmir will also remain targets.

The risk of violent protests in Kashmir will incrementally increase in the next six months.

On August 21, 2019, an Indian security officer was killed in a clash with a suspected militant in Kashmir, further escalating interstate tensions.

Trading Environment

India recorded its lowest growth rate in the past five years in Q4 FY2018-19, at 5.8% year on year, slowing from 6.6% year on year in the previous quarter. This was due to a slowdown in both gross fixed capital formation and real private consumption.

Growth in gross fixed capital formation slowed to 3.6% year on year in the fourth quarter, down from 11.7% the previous quarter, driven by election uncertainty.

Private consumption growth also decelerated to 7.2% year on year, down from 8.1% in the previous quarter.

Private consumption makes up 59.4% of GDP in India, and over the coming years this will rebound to be the major driver of growth.

During the next five years, Indian households will become the biggest spenders among G20 countries.

A steadily rising number of middle- and high-income households, rising urbanization, and improving access to credit will support India’s consumer demand.

Downside risks to the growth forecast come from the US' decision, in June 2019, to cease recognizing India as a beneficiary under its Generalised System of Preferences scheme for developing countries.

The scheme allowed India to export almost 2,000 products to the US duty free.

This, together with slowing global growth, which is forecast to decelerate to 3% in 2019 from 3.2% in 2018, will likely weigh on India’s export growth outlook. India’s net export deficit accounts for 4% of GDP.

The net export deficit is forecast to worsen slightly, to around 4.5% over the long term, as rising business and economic activity will be met with increased capital goods imports.

Investment Environment

Pricing outlook IndiaThe re-election of the National Democratic Alliance (NDA) should ensure that investment picks up over the course of 2019-20.

Fixed capital formation makes up 31.3% of GDP, and this is expected to remain fairly stable at approximately 30% in the long term.

The assurance of broad policy continuity under Modi should see businesses resume their expansion plans.

The government is expected to offer large amounts of unused land under state-owned enterprises to foreign investors for development, as part of its 100-day reform package.

The proposed reform package will also include changes in labor laws and the creation of land banks for new industrial development.

The reforms are likely to go ahead due to the BJP’s increased majority in the lower house of parliament.

5 Key Takeaways

  • The re-election of Prime Minister Narendra Modi in May 2019 consolidates the mandate of the Bharatiya Jana Party (BJP) in a second-term.
  • In August 2019, India revoked Article 370 of the constitution, which granted special autonomous privileges to Jammu and Kashmir.
  • This is likely to increase interstate war risks with Pakistan, including artillery exchanges and Indian airstrikes.
  • On 21 August an Indian security officer was killed in a clash with a suspected militant in Kashmir, further escalating interstate tensions.
  • In the next five years, Indian households will become the biggest spenders among G20 countries.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for DRC, Mozambique, Myanmar and Tunisia all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)20 8108 9544.

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