Global index inclusion would marginally boost bonds

Speculation is building that India will be included in major global bond indices over the next year or so. If that happens, it would highlight the local bond market’s growing maturity and be cast as a coup by the government, for which bond index inclusion has long been a stated policy aim. With vast amounts of assets tracking global indices, this would leave scope for a rise in portfolio inflows. To be clear, with India’s weighting in any global index likely to be small and increased only gradually, the impact is more likely to be marginal than transformational. Nevertheless, bond index inclusion would still bolster our view that, supported by a commitment from the RBI to keep policy very accommodative, Indian bond yields should only rise very slightly over the next 18 months even in an environment of higher US Treasury yields.   Drop-In: Evergrande – What are the risks to China and the world? Chief Asia Economist Mark Williams and Senior China Economist Julian Evans-Pritchard will be joined by Senior Markets Economist Oliver Jones to take your questions about the Evergrande situation. They’ll be covering the implications of collapse for China’s financial system and growth outlook, and assessing the global markets fallout. Register here for the 0900 BST/1600 HKT session on Thursday, 23rd September.
Darren Aw Asia Economist
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India Economics Weekly

Billionth vaccine masks worrying slowdown in rollout

India this week administered its billionth COVID-19 vaccine dose, but that figure masks a worrying recent slowdown in the vaccination drive. And as a share of the population, the number of fully vaccinated individuals remains low. For now, the economy still looks vulnerable to the threat of further virus outbreaks.

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RBI in no hurry to withdraw policy support

The latest activity data suggest that India's recovery has entered a slower phase, with global supply shortages starting to weigh on the economy too. In addition, India’s vaccination coverage remains low, leaving the economy exposed to the threat of further virus outbreaks. All of this underscores the need for the RBI to keep policy supportive. Indeed, the Bank said in its monthly bulletin this week that India “is still digging out of one of the deepest contractions to hit any major economy during the pandemic”. The report concluded that “policy support for a sustained and inclusive recovery may be needed for longer”. While further steps will be taken to gradually withdraw banking sector liquidity, we expect monetary policy to remain accommodative for several more months.

20 October 2021

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Industry stalling as services reopens further

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A dive into the National Infrastructure Pipeline

The Indian government’s aim to significantly ramp up infrastructure investment through its flagship National Infrastructure Pipeline (NIP) has suffered less disruption than might have been expected during the pandemic. That is a positive for long-term growth prospects. But significant headwinds – including the weakness of the banking sector and land acquisition constraints – will prevent the NIP from having a transformational impact on the Indian economy.

20 September 2021

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Telecoms lifeline, autos constraints, bank liquidity

India's struggling telecoms firms were thrown a lifeline this week after parliament approved a four-year moratorium on dues owed to the government. One potential consequence is that telecoms firms are required to raise prices in order to lift revenues, which would boost inflation. Meanwhile, global semiconductor shortages have been weighing on India's auto sector, which will prove a headwind to the broader industrial recovery.

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Wholesale Prices (Aug.)

Following the weaker-than-expected consumer price inflation data for August released yesterday, headline wholesale price inflation data released today surprised to the upside. But it should resume dropping before long, particularly if commodity prices fall back as we expect. In all, there’s little in the August inflation data to pressure the RBI to start tightening policy.

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