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Finance Ministry could respond to new virus wave India reported its first cases of the Omicron variant yesterday. Plenty of uncertainty remains about the new variant, but we outlined some of the key factors that could determine the extent of the economic …
3rd December 2021
Manufacturing recovery still fragile The jump in India’s manufacturing PMI in November suggests that the recovery is still ongoing, although it appears that global supply shortages have remained a drag. And with vaccination coverage in India still low, …
1st December 2021
MPC likely to stand pat next week as Omicron fears build Committee likely to announce further measures to drain bank liquidity… …laying the groundwork for policy rate hikes from mid-2022 Whereas many EM central banks have been hiking rates aggressively, …
Rapid rebound, but Omicron variant a key downside risk The 8.4% y/y rise in Indian GDP in Q3 (Q2 of FY21/22) is consistent with a rapid q/q rebound as virus restrictions were lifted and activity surged. But timelier data suggest that the recovery has …
30th November 2021
Winter parliament session set to disappoint The winter session of parliament begins on Monday with all indications point to it being a disappointment on the reform front. Fractious politics in the Rajya Sabha (upper house of parliament) – where PM Modi’s …
26th November 2021
The repeal this month of controversial reforms aimed at liberalising the agriculture sector is arguably the biggest political setback that the Modi government has faced since coming to power in 2014. And while the direct economic impact of abandoning …
24th November 2021
Investment facing long-term headwinds In a speech to the Confederation of Indian Industry (CII) this week, Finance Minister Nirmala Sitharaman made an impassioned plea for the private sector to play a greater role in the economic recovery by ramping up …
19th November 2021
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 …
17th November 2021
WPI inflation will peak soon The jump in headline wholesale price inflation in October was due almost entirely to higher commodity prices, but we think they are now close to peaking. While the RBI will be wary that wholesale prices remain elevated, …
15th November 2021
Rise in inflation keeps it still well within RBI target range India’s consumer price inflation edged up in October but remained well below the 6% ceiling of the RBI’s inflation target range. And we expect it to stay there for several months yet, which …
12th November 2021
Coal inventories have bottomed out Coal-fired power plants in India now have on average enough stocks to last seven days. (See Chart 1.) That’s an encouraging improvement after the sharp plunge in inventories two months ago, and it should help to ease …
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 …
11th November 2021
Hike in reverse repo rate not imminent Recent measures by the RBI to further drain liquidity from the banking system have been fuelling hawkish monetary policy expectations. Overnight index swap rates have jumped over the past week. And several analysts …
5th November 2021
Recovery going strong, but downside risks remain The strength in India’s PMI surveys for October suggests that economic activity continued to hold up well last month. But we still think that the recovery is set to enter a slower phase, and India’s low …
3rd November 2021
Manufacturing recovery still fragile The jump in India’s manufacturing PMI in October paints an upbeat picture of the health of manufacturing, but the recovery remains fragile against the backdrop of persistent global supply shortages and India’s low …
1st November 2021
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 …
Industrial recovery falters Output from India’s core infrastructure industries dropped in September, providing further signs that the industrial recovery is faltering on the back of supply constraints. The core infrastructure industries index measures …
29th October 2021
Rising oil prices not yet a concern Global oil prices rallied further this week to multi-year highs, and sustained increases could be economically-destabilising for India. After all, it is one of the world’s largest net importers of oil, and high global …
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 …
25th October 2021
Vaccine demand appears to be waning India administered its billionth COVID-19 vaccine dose this week, marking a significant milestone in the country’s rollout. But the aggregate figures mask a worrying recent slowdown in the vaccination drive. The number …
22nd October 2021
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 …
20th October 2021
Industry hit by supply constraints Lacklustre industrial production data for August released this week were in part a reflection of a weak auto sector, which has been struggling to maintain output in the face of global semiconductor shortages. Vehicle …
15th October 2021
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 …
Further falls in WPI inflation likely 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 …
14th October 2021
Drop in headline inflation still has further to run India’s consumer price inflation dropped further below the 6% ceiling of the RBI’s inflation target range in September, and we expect it to remain there for several more months. That’s one reason to …
12th October 2021
Overview – 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 …
11th October 2021
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 …
8th October 2021
Persistent shortages are a growing downside risk India is the latest major economy to be facing concerns about energy supply. Coal-fired power plants have on average enough stocks to last only four days, well below usual levels. (See Chart 1.) Chart 1: …
Recovery going strong, but downside risks remain The buoyant readings in India’s PMI surveys for September add weight to our view that economic output rose back to pre-virus levels in Q3. But the recovery will probably lose momentum over the coming …
5th October 2021
Manufacturing recovery likely to lose a bit of steam India’s manufacturing PMI rose in September, but that is likely to prove the high point as the rapid reopening rebound fades and local manufacturers start to feel the pinch from global supply shortages. …
1st October 2021
Improving tax revenue aiding the fiscal position Data released this week show that after five months of FY21/22 (April to August), the cumulative central fiscal deficit stood at 31% of the overall annual budget estimate. That is far smaller than normal …
Pace of industrial recovery has slowed Output from India’s core infrastructure industries only edged slightly higher in August, suggesting that the rapid reopening rebound has faded. The broader industrial recovery remains fragile against a backdrop of …
30th September 2021
RBI likely to keep rates on hold next week as inflation pressures eases Admittedly, some liquidity draining measures could be announced… …but these are likely to be marginal tweaks rather than signs of policy tightening Policy rates are highly likely to …
29th September 2021
Exports to resume, but local rollout takes priority Health Minister Mansukh Mandaviya this week announced that India will resume exporting COVID-19 vaccines from October. India stopped supplying vaccines to the rest of the world in April when it was …
24th September 2021
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 …
22nd September 2021
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 …
20th September 2021
Struggling telecoms get a financial lifeline Parliament this week approved several relief measures for India’s embattled telecoms sector. The most significant is a four-year moratorium on dues owed to the government. To operate in India, telecoms firms …
17th September 2021
Measures by the Reserve Bank to drain banking sector liquidity have caught attention over the past few days. But with liquidity still abundant, interbank rates at the very bottom of the rate corridor and financial conditions exceptionally loose, these …
14th September 2021
Rebound in WPI inflation likely to be temporary 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 …
Drop in India’s inflation still has further to run The drop in India’s consumer price inflation in August was driven by a continued fall in food inflation. We expect a broader easing in price pressures to bring headline inflation further below the 6% …
13th September 2021
Rollout picks up speed but vaccination rates low India’s vaccine rollout has shifted into a higher gear over the past couple of weeks. Daily vaccinations have risen from about 5mn in mid-August to 8mn in September. Importantly, this pace of vaccination …
10th September 2021
This year’s monsoon has so far been weaker than usual. This won’t have as big an economic impact as it would have a couple of decades ago. But it will harm employment and energy production. Some comfort can be taken from the fact that food inflation is …
7th September 2021
Recovery going strong, but downside risks remain The sharp rises in India’s services and composite PMI readings in August support our view that the economy has staged a strong rebound in Q3. But downside risks remain significant as the threat of further …
3rd September 2021
Activity data indicate sharp recovery in Q3 Much of the coverage of this week’s Q2 GDP release highlighted the record y/y growth rate, but that was due to the slump last year rather than recent economic strength. We estimate that GDP dropped by 12% q/q in …
Manufacturing recovery starting to ease off The drop in India’s manufacturing PMI in August is probably just a sign of activity normalising following the strong pace of recovery in recent months. But the threat of further virus waves remains a significant …
1st September 2021
Q2 contraction to give way to strong Q3, but downside risks remain The record y/y rise in Indian GDP in Q2 (Q1 of FY21/22) was due entirely to base effects. We estimate that the economy shrank by 12% in q/q terms as India struggled with its Delta …
31st August 2021
Virus positivity rate in Kerala still rising Earlier this month, we flagged the sharp rise in new virus cases in Kerala as a key risk to economic recovery. On the face of it, there are encouraging signs that the outbreak is being brought under control. …
27th August 2021
Foreign portfolio outflows from Indian financial markets have been easing this month (see Chart 1), bucking the broader EM trend. This may have been driven in part by the improvement in the virus situation. Looking ahead, the growing likelihood of the US …
25th August 2021
The minutes of the Reserve Bank’s August policy meeting show the first signs of dissent as MPC member Jayanth Varma argued that a hike in the reverse repo rate and a change in policy stance would be prudent to show that the committee remains committed to …
23rd August 2021
Normalisation still some way off… We’ve argued for some time that the RBI is in no rush to join several of its emerging market peers in tightening monetary policy. That view was reinforced by the MPC’s relatively dovish communications at this month’s …
20th August 2021
