India Economics Focus

India Economics Focus

How much scarring will the pandemic leave?

The pandemic’s most significant economic legacy in India will be a heavily-damaged banking sector that is likely to constrain investment over the years ahead. This underpins our view that the economy could be 5% smaller over the long run than it would have been had the pandemic not happened. In view of the wider interest, we have also made this publication available to clients of our Long Run service.

17 November 2021

India Economics Focus

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

India Economics Focus

The fallout from the second wave

India’s ferocious second wave of COVID infections is likely to have caused the economy to contract by about 5% over Q2 as a whole. The good news is that the outbreak is quickly subsiding and activity appears to have bottomed out. But the recovery is likely to be slower than last year. Under those circumstances, the RBI is likely to keep policy very accommodative for a long while yet.

3 June 2021
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India Economics Focus

State elections could brighten reform outlook

The upcoming state elections in India will have an important bearing on economic policy at the local level. But perhaps more significant, the outcome of the state elections could be important in determining whether Prime Minister Modi’s BJP will be able to gain control of parliament’s upper house, perhaps by 2022. This would remove one of the constraints on the passage of economic reforms.

India Economics Focus

What should we expect from the Union Budget?

The Finance Ministry faces a tough balancing act in the Union Budget for FY21/22 as it aims to stabilise the public finances while avoiding economically and politically-damaging spending cuts. The most likely outcome is that it will set ambitious revenue targets and quietly shift some spending off-balance sheet, allowing it to present a smaller headline deficit. This may keep the bond market on the side for the time being. But obfuscation of the true fiscal position risks undermining credibility over the long term.

25 January 2021

India Economics Focus

Our key calls for 2021

The distribution of an effective COVID-19 vaccine in India will brighten the economic outlook next year, but India’s recovery will still be one of the weakest among major economies. One consequence is that government bond yields will remain exceptionally low, although we think that the rally in local equities has further to run. Meanwhile, the reform agenda that matters for long-term prospects is likely to take a breather in the first half of the year as several state elections loom.

India Economics Focus

How will policymakers deal with soaring public debt?

The economic slump and the government’s fiscal response are driving a sharp rise in public debt in India. There is no immediate threat given low-interest rates and the likelihood that nominal GDP growth will rebound from next year. But in coming years policymakers are likely to rely more heavily on financial repression to keep a lid on borrowing costs, which may undermine trend growth. And the priority being given to stabilising debt over boosting demand will hold back India’s economic recovery.

13 August 2020

India Economics Focus

Lasting blow to supply capacity is not inevitable

It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to revert to the path of output they were on before the crisis. Nonetheless, with demand likely to be slow to recover fully, this could still take several years. And there will be several important exceptions to this generally optimistic picture.

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