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New virus cases in India remain extremely high, but some solace can be taken from the fact that they have dropped rapidly over the past couple of weeks back to their level in mid-April. The share of tests returning positive has fallen too. Encouragingly, …
20th May 2021
There is typically more scope for female participation rates to rise and boost labour supply in EMs. This is particularly so in India and is one reason why we expect its economy to outperform in the long run. Increasing female labour force participation …
19th May 2021
Fuel-driven rise in headline WPI inflation will be short-lived The surge in Indian wholesale price inflation in April was driven in large part by the rally in commodity prices, which we think will reverse over the coming months. That should allow the RBI …
17th May 2021
Goods trade data for April add to evidence from elsewhere that that the new round of virus restrictions has not been as economically disruptive as the national lockdown last year. India’s goods trade deficit widened from $13.9bn in March to a four-month …
Supply issues are holding back vaccinations New virus cases in India remain extremely high, though the slower pace of increase and lower share of tests returning positive offers some hope that the current wave is close to peaking. However, lacklustre …
14th May 2021
Headline inflation to remain anchored below RBI’s 6% upper limit India’s consumer price inflation dropped to a three-month low in April, adding to evidence elsewhere that the recent tightening of virus restrictions has not been as economically disruptive …
12th May 2021
Real-time data indicate that industry in India has not been hit as severely as services, and is holding up well compared to a year ago. That’s a reflection of the more targeted restrictions that have so far been introduced. But there is also evidence of …
10th May 2021
Cases stabilising in key states There are both glimmers of hope and causes for alarm in the latest infection numbers. On the one hand, there are early signs that the crisis in Maharashtra, Delhi and Uttar Pradesh might have peaked, with virus cases …
7th May 2021
The impact of India’s COVID-19 crisis on other EMs through normal economic channels such as trade and financial links should be manageable. The more serious impact will come through delays to vaccine rollouts, particularly for countries in South Asia and …
5th May 2021
In an unscheduled announcement today, RBI Governor Shaktikanta Das unveiled an array of measures aimed at mitigating the economic and financial impact of India’s virus crisis. This Update takes stock of those measures and outlines what they might mean for …
Limited economic impact so far, but more to come still India’s PMI readings for April suggest that economic activity has held up fairly well despite the latest set of containment measures. But with virus cases still extremely high, tighter and …
Results of the state elections that have been taking place over the past couple of months are unlikely to have undermined the BJP’s willingness to implement difficult economic reforms, particularly given its victory in Assam. But at the same time, the …
3rd May 2021
Manufacturing PMI holds up, but headwinds are mounting India’s manufacturing PMI held up well in April, reflecting the fact that the containment measures in response to the surge in COVID-19 cases have been very light touch compared to last year. But the …
Rebound in industry overtaken by second wave India’s core infrastructure industries index rebounded in March, but this is old news given the dramatic surge in virus cases and renewed tightening of containment measures since then. The core infrastructure …
30th April 2021
With the surge in COVID-19 infections showing no signs of abating and containment measures being reimposed, concerns about spill-overs to the real economy are growing. So far, activity is holding up well . But policymakers are likely to be concerned by …
Real-time data on traffic, electricity demand and mobility suggest that, so far at least, India’s virus outbreak has had more of an impact on behaviour than it has on activity. We will continue to keep close tabs on the high-frequency data over the coming …
27th April 2021
Restrictions may need further tightening The surge in new COVID-19 cases in India and subsequent tightening of state-level restrictions has started to weigh on activity . (See Chart 1.) Chart 1: CE India Mobility Tracker (% Diff. from Jan.-6 th Feb. 2020, …
23rd April 2021
The minutes of the Reserve Bank’s April policy meeting – in which interest rates were left unchanged – show that the MPC is committed to keeping policy accommodative to support the economic recovery. The surge in virus cases since that meeting is only …
Our in-house mobility tracker suggests that the surge in virus infections in India is now weighing on activity. (See Chart 1.) This is likely to become more pronounced as the outbreak has become more widespread, causing several state assemblies to tighten …
21st April 2021
Headwinds to investment mounting Industrial production data released this week showed that output growth dropped further into negative territory in February. Looking at the breakdown, tepid capital goods production suggests that investment growth will …
16th April 2021
The widening in India’s goods trade deficit in March came on the back of a surge in monthly gold imports to its highest on record. But this was driven in part by one-off factors. Looking ahead, we expect gold import values to remain contained over the …
15th April 2021
Fuel-driven rise in headline WPI inflation will be short-lived The faster-than-anticipated acceleration in headline wholesale price inflation in March was driven by a surge in fuel inflation, but we think it should fall back soon enough. And with the …
Rising headline inflation won’t trigger rate hikes India’s consumer price inflation jumped to a four-month high in March as food inflation accelerated. But we doubt that the headline rate will continue rising for much longer and, with the economic …
12th April 2021
Talk of QE misses the bigger picture Much of the commentary following the RBI’s policy meeting this week – in which policy rates were kept on hold – has been on the announcement of a new programme (the so-called G-SAP) through which the central bank will …
9th April 2021
Overview – The economic recovery has progressed well over recent months and as things currently stand growth is on course to be stronger than the consensus expects this year. But the recent surge in virus cases is a significant downside risk to the …
8th April 2021
The MPC voted to keep the repo and reverse repo rates on hold today amid the surge in COVID-19 cases, and committed to keeping policy “accommodative to support and nurture the recovery”. Given this, we continue to think that markets are too hawkish in …
7th April 2021
Strong Q1, but outlook deteriorating India’s PMI readings for March indicate that the economic recovery continued to progress well at the end of Q1. But with virus cases surging and new restrictions quickly coming onto the agenda, the outlook has taken a …
Manufacturing outlook takes a turn for the worse India’s manufacturing PMI for March indicates a continued rebound in the sector last month, but that has already been overtaken by more recent events. In particular, the renewed surge in new COVID-19 cases …
5th April 2021
The rise in new COVID-19 infections to a six-month high yesterday has predominantly been limited to one state. But there are signs that the virus is spreading rapidly to other parts of the country and, with the vaccine rollout proving slow-going, the …
1st April 2021
RBI will continue to target 4% headline inflation Economic Affairs Secretary Tarun Bajaj yesterday confirmed that the RBI’s current inflation target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, will be maintained for the next five years. …
Industrial outlook takes turn for the worse Growth in India’s core infrastructure industries slumped in February and, with the broader industrial outlook taking a turn for the worse as new COVID-19 cases mount, the RBI is likely to keep policy very …
31st March 2021
Several EM central banks have hiked policy rates in recent weeks… …but risks to India’s economic recovery mean the RBI is unlikely to follow suit Inflation target likely to remain unchanged for the next five years EM monetary policy has turned decidedly …
29th March 2021
Bad debts set to pile up The Supreme Court this week lifted its ban on banks classifying delinquent loans as non-performing, reversing a measure that was introduced seven months ago. This is the last of the significant extra-ordinary banking sector …
26th March 2021
Parliament’s approval this week of a loosening of restrictions on FDI in the insurance sector will not have a significant macro impact, but it provides reassurance that FDI reform remains a priority for the government. That bodes well for India’s external …
25th March 2021
A rise in headline consumer price inflation over the coming months will do little to temper growing market expectations of imminent rate hikes. But it will largely be driven by fuel price inflation, which the RBI should look through. Further ahead, a …
24th March 2021
Persistent rise in infections could dent the recovery New daily COVID-19 cases in India have been rising over recent weeks, and on Thursday reached their highest level since early December. For now at least, this doesn’t appear to be a major threat to the …
19th March 2021
Foreign investor appetite for Indian assets has faded in recent weeks. Inflows into the equity market have waned, while foreigners have turned into net sellers of Indian debt. (See Chart 1.) This chimes with movements in portfolio flows in other major …
18th March 2021
The narrowing in India’s goods trade deficit in February is likely to soon reverse as the recovery in domestic demand and oil prices pushes up imports. But while this means that India’s recent current account surplus is unlikely to last for long, the …
16th March 2021
Rise in headline WPI inflation won’t trigger a rate hike The acceleration in headline wholesale price inflation in February to a two-year high will do little to dampen growing market expectations of rate hikes in the very near future. However, we still …
15th March 2021
Rebound in headline inflation won’t trigger a rate hike Headline CPI inflation rebounded in February, but we doubt that this will lead to a rate hike at the upcoming MPC meeting in April. The renewed contraction in industrial output in January clearly …
12th March 2021
Rate hikes still a long way off Financial markets appear increasingly convinced that the RBI is on the cusp of fairly aggressive monetary tightening. A cumulative 100bp increase in interest rates this year is now being discounted, with the first rate hike …
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 …
10th March 2021
Upgrading our forecast for GDP growth in 2021 India’s financial markets have not been immune from the turbulence in global markets over the past couple of weeks, but the latest economic data have been largely positive. GDP data for Q4 2020 (Q3 of FY20/21) …
5th March 2021
PMIs point to a continued economic recovery India’s PMI readings for February suggest that output has rebounded further above pre-virus levels so far this quarter. With fiscal policy turning more supportive and new virus cases remaining low, the recovery …
3rd March 2021
Manufacturing sector holding up well India’s manufacturing PMI reading was virtually unchanged in February and remains consistent with a strong recovery in the sector so far this quarter. That should continue over the coming months, helped by looser …
1st March 2021
GDP returns to pre-virus level India’s Q4 GDP data confirm that the economy continued to perform well at the end of 2020 and the outlook for this year has improved too as fiscal policy has been loosened substantially. Even so, we doubt that GDP will be …
26th February 2021
Should the RBI target core inflation? Under current law, India’s government issues the RBI with an inflation target every five years. The current target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, runs until the end of next month. We’ve …
Indian GDP data due to be released on Friday are likely to show only a small contraction in annual growth in Q4 2020, and high-frequency indicators point to a relatively strong start to 2021. Indeed, our in-house mobility tracker suggests that activity …
24th February 2021
The minutes of the Reserve Bank’s February policy meeting – in which interest rates were left unchanged – show that the MPC remains cautious on the inflation outlook but that it is also committed to keeping policy accommodative to ensure that the economic …
23rd February 2021
Investment recovering, but headwinds remain The breakdown of the industrial production data for December showed a continued rebound in output of capital goods. On past form, this recovery suggests that our initial estimate that investment contracted by …
19th February 2021
