India

India Economics Weekly

Industry stalling as services reopens further

The impact of global semiconductor shortages on India’s auto sector was evident in the lacklustre industrial production data for August released this week. And with energy supply constraints also worsening, the outlook for industry is deteriorating. Meanwhile, services-specific containment measures were scaled back further this week, but the gains are likely to be small.

15 October 2021

India Economics Update

Burgeoning trade deficit is not a major concern

The sharp widening in India’s goods trade deficit in September was driven in part by an unusually large jump in oil imports that we think will prove a one-off. And with the economic recovery entering a slower phase, imports more generally are unlikely to rise much further from here. The big picture is that external risks still look limited.

15 October 2021

India Data Response

Wholesale Prices (Sep.)

Headline WPI inflation dropped to a five-month low in September on the back of a fall in food and fuel inflation, both of which are likely to continue easing. And with the recent drop in consumer price inflation also having further to run, we remain confident in our view that policy rate hikes won’t be coming back onto the agenda until the middle of next year.

14 October 2021

Key Forecasts

Main Economic & Market Forecasts

% y/y unless stated

Latest

Q3 2021

Q4 2021

Q1 2022

2021

2022

2023

GDP

+20.1*

+9.0

+4.7

+4.7

+8.0

+10.5

+7.5

Consumer Prices

+4.4**

+5.1

+5.0

+5.3

+5.2

+5.5

+5.3

Current Account (4Q Sum, % of GDP)

+0.4*

-0.4

-0.6

-0.6

-0.6

-1.5

-1.7

Repo Rate %

4.00

4.00

4.00

4.00

4.00

4.50

5.00

Reverse Repo Rate %

3.35

3.35

3.35

3.35

3.35

4.00

4.75

Cash Reserve Ratio %

4.00

4.00

4.00

4.00

4.00

4.00

4.00

10-Yr Government Bond Yield %

6.33

6.22

6.25

6.25

6.25

6.50

6.50

INR/US$

75.0

74.2

75.0

75.3

75.0

76.0

77.0

Sensex

61,306

59,126

62,500

63,550

62,500

66,700

71,000

Sources: Bloomberg, CEIC, Capital Economics, *Q2; **September; †End of period


Industry stalling as services reopens further

India Economics Weekly

17 October 2021

Our view

Following a rapid rebound from the second virus wave, India’s economy is beginning to lose some steam. And with vaccination coverage still low, downside risks remain significant. Under these circumstances, the RBI is likely to keep policy accommodative for several months yet. And the longer the pandemic rumbles on, the greater the risk of the economy suffering long-term scarring.

Latest Outlook

India Economic Outlook

Recovery enters a slower phase

Following a rapid rebound from the second virus wave, India’s economy is beginning to lose some steam. And with vaccination coverage still low, downside risks remain significant. Under these circumstances, the RBI is likely to keep policy accommodative for several months yet. And the longer the pandemic rumbles on, the greater the risk of the economy suffering long-term scarring.

11 October 2021