India Economics Update

India Economics Update

A guide to political events in 2022

Korea, the Philippines and India are each holding elections this year that will play a role in setting fiscal and structural reform priorities, including the possible introduction of a universal basic income in Korea. And China looks set to tear up the leadership succession rules that have contributed to its unusual stability as an autocracy over recent decades. In view of the wider interest, we are also making this Emerging Asia Economics Update available to clients of our India and China services.

10 January 2022

India Economics Update

Key calls for 2022

As long as recurrent large waves of COVID are avoided, we think that Indian GDP growth will accelerate this year. At the same time, inflation is likely to rise more sharply than generally expected. The result is that policy rates will be hiked by more than the consensus is forecasting.

5 January 2022

India Economics Update

RBI still taking baby steps towards tightening

The MPC voted to keep policy rates on hold today, opting only to introduce further small measures to withdraw liquidity from the banking sector. With the RBI still focusing primarily on supporting the fragile economic recovery, we continue to think that policy rates will be left on hold for a few more months yet.

8 December 2021
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India Economics Update

Mobile payment takes off

The pandemic has triggered a three-fold increase in the use of mobile payments in India. It is unclear whether there has been a corresponding broadening in the number of people using cashless payment. Demonetisation, five years ago this week, also resulted in a surge of cashless payment but mostly by those who already had access to it, rather than new users. However India has taken big strides since then in modernising its payments infrastructure and should be better able to reap the benefits.

India Economics Update

Annual fiscal deficit will be smaller than budgeted

Relative to budget estimates, the cumulative fiscal deficit in rupee terms is much smaller than normal for this time of year, due in large part to decent tax revenues. We think the Finance Ministry will use the tax windfall to rein in the overall budget deficit for FY21/22, which should help to limit the rise in local bond yields over the coming months.

1 November 2021

India Economics Update

MPC fault lines emerge, but doves still in control

The minutes of the Reserve Bank’s October policy meeting suggest greater divergence of opinion within the MPC, with two members calling for more definitive steps towards policy normalisation. But most members – including Governor Shaktikanta Das – are more concerned about downside risks to the economic recovery. That supports our view that policy will remain loose for several more months yet.

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.

India Economics Update

Rate hikes remain a distant prospect

The Reserve Bank kept the repo rate on hold at a record low today and stressed that its latest liquidity-withdrawal measures do not constitute policy tightening. Given our view that the recovery will only be back on more solid footing next year, we continue to think that rate hikes are still a long way off.

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