Outlook for 2011-15

• Despite its lack of a reliable parliamentary majority, the Indian National Congress-led United Progressive Alliance coalition government is expected to serve its full second term to 2014.
• Political stability will vary from one region of India to another. The violent insurgency waged by Naxalite (Maoist) groups across large swathes of central and eastern India is becoming the country's most serious security problem.
• Economic reform will continue only incrementally. The government is likely to restrict its focus to targeted spending and piecemeal changes, rather than attempting to implement more sweeping structural reforms.
• The Economist Intelligence Unit expects the government to meet its budget deficit target of 5.5% of GDP for fiscal year 2010/11 (April-March). Public expenditure will continue to rise rapidly in 2011-15.
• The Reserve Bank of India (RBI, the central bank) will continue to tighten monetary policy in 2011, raising the benchmark repurchase (repo) rate to 6.5%. Monetary policy will return to a more neutral setting in 2012-15.
• Real GDP on an expenditure basis is forecast to expand by 9.1% in 2010/11 and 8.9% in 2011/12, compared with 7.7% in 2009/10. Growth will average 8.7% a year in the period from 2012/13 to 2015/16.

Monthly review

• State assembly elections in Bihar have resulted in a victory for the existing government there. The biggest loser was Congress, which won just four seats, down from nine in the previous state election.
• Congress is facing an internal crisis, following the resignation from the party of the head of a powerful business and political family in the southern state of Andhra Pradesh.
• In its mid-quarterly review of monetary policy on December 16th, the RBI kept key interest rates unchanged but lowered the statutory liquidity ratio by 1 percentage point, to 24%.
• The government has postponed until 2011/12 the follow-on public offering of shares in state-owned Indian Oil, the country's largest refiner and marketer of petroleum.
• The Indian economy (measured at factor cost) grew at the unexpectedly rapid pace of 8.9% year on year in July-September.
• Industrial output soared by 10.8% year on year in October as demand for consumer durables (such as cars and electronic goods) and power equipment picked up.