India to do better than most Asian peers due to policy steps, lesser reliance on China, says ING

Delhi witnesses rare fog in hottest month of year, 3rd coldest May morning since 1901

India is poised to do better than most of its Asian peers in 2023 as proactive policy puts the country in a good position to benefit from easier conditions during the year, ING Bank has said.

“India's lesser reliance on trade with China also provides a buffer, while a rethink on global bond market inclusion for government securities could see substantial capital inflows,” Robert Carnell, Regional Head of Research, Asia-Pacific at ING said in an investor note shared on January 10.

Carnell’s views echo those of the International Monetary Fund. India was a relative bright spot in the global economy and making important progress on the structural reform agenda, IMF’s deputy managing director Antoinette Sayeh said last week.

For Asia as a whole, 2023 is not going to be a great year for growth as the region's main external trade partners were already in or going into a recession and its largest economy, China, was struggling, Carnell said.

Finance Minister Nirmala Sitharaman is set to present the Union Budget 2023-24 on February 1, amid expectations that the government may announce more steps to boost the economy as well as usher in fresh reforms.

Better FDI

ING expects India to continue to climb the rankings of foreign direct investment (FDI) destinations in 2023, even as the external economic outlook darkens and China re-opens.

“India is increasingly being seen as an alternative destination for investment following policy measures designed to ease FDI inflows and promote the manufacturing industry, as well as investment issues in China (trade wars, tech wars, zero-Covid etc),” Carnell said.

“India is the only economy in Asia to offer the potential for scalability, which was one of the main attractions of China.”

Global bond index inclusion

The long pending inclusion of Indian bonds on global indices in 2023 would fill a gap left by the exclusion of Russian bonds, ING said.

“At stake for India is an estimated $40bn of capital inflows that will help pay for the current account deficit and support the INR,” it added.

While both JP Morgan and FTSE Russell had kept Indian bonds on their watch list for inclusion in 2022 and are expected to make a decision on inclusion early this year, the government has, so far, not budged on relaxing tax treatment for foreign investors.

Interest rates peaking 

Interest rates in India were close to a peak and would come down before the end of the year, ING had predicted.

With inflation likely closing in on 4-5 percent by the middle of the year, the Reserve Bank of India could start to tentatively take back some of its tightening before the end of the third quarter of 2023.

“Now that policy rates are positive in real terms (which will continue as the high inflation tide recedes), we're confident that the peak will be close even without further hikes from the RBI,” Carnell said.