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The BJP’s relatively strong performance in the state election in Bihar suggests that goodwill for the ruling national party remains intact amid India’s largest recession in modern history. Bihar has also been one of the states to recently implement labour …
11th November 2020
Biden presidency could strengthen US-India ties At the time of writing, Joe Biden is on course to secure the presidency of the United States. With Congress set to remain in gridlock, we doubt that the election will have a major bearing on the outlook for …
6th November 2020
Economic recovery gaining momentum The rise in the October PMIs suggests that the economy has been rebounding a little faster than we had thought. However, there are still plenty of headwinds to the recovery. Over recent months, the PMIs have been more …
4th November 2020
The Finance Ministry’s response to the pandemic has been even smaller than we initially thought. Announced stimulus measures were already meagre in size. It now appears that their impact has been partially offset by a pullback in other forms of government …
2nd November 2020
Manufacturing recovery gathers pace The rise in the manufacturing PMI to its highest reading in over a decade in October suggests that the recovery has been stronger than we had anticipated. But given the damage to corporate balance sheets and that …
Fin Min’s growth forecasts appear unfeasible Comments this week from Finance Minister Nirmala Sitharaman that GDP growth would be “near zero” this fiscal year paint an unrealistically optimistic picture of the economic outlook. For a start, India’s …
30th October 2020
Industrial recovery picks up a bit of pace The slump in the core infrastructure industries index eased in September, and this suggests that overall industrial output contracted by 8% in Q3. That’s a slight upside risk to our GDP forecasts. The core …
Out of all the banking sectors in major economies, India’s warrants the most concern. It came into the crisis in the worst shape, and the scale of damage to private balance sheets means it will be one of the hardest hit from rising defaults. Policymakers …
29th October 2020
The minutes of the Reserve Bank’s October policy meeting – in which policy was left unchanged – show that the MPC has turned more dovish on the inflation outlook and that it has reservations about the strength of the economic recovery. This reinforces our …
26th October 2020
Election could have key long-term implications After an eight-month pause, India’s state election cycle kicks off again next week in Bihar. Voting will take place in phases between 28 th October and 7 th November, with results expected on the 10 th . …
23rd October 2020
New COVID-19 cases in India have dropped significantly over the past month. (See Chart 1.) Encouragingly, the share of tests returning positive has also dropped, indicating that the improvement in test results reflects a genuine drop in infections. That …
21st October 2020
Fresh stimulus will have limited impact on demand After dragging its heels for several months, the Finance Ministry announced further stimulus this week with a package worth INR730bn (0.4% of GDP). Around half of this consists of cash vouchers and loan …
16th October 2020
WPI inflation rises by more than expected The rise in headline wholesale price inflation in September was sharper than expected but, with price pressures likely to ease in earnest over the coming months, we think further policy rate cuts are still on the …
14th October 2020
Headline rate has probably peaked Headline consumer price inflation rose by more than expected in September but there are signs that it may now have peaked. We think it will drop in earnest over the coming months which will open space for the RBI to …
12th October 2020
Industry still struggling to recover The slump in industrial production eased in August but output is still well below its pre-virus levels. And the fiscal stimulus package announced today will do little to boost demand. The recovery in industry, much …
It came as no surprise that the new MPC voted unanimously to keep the repo and reverse repo rates on hold today. But the relatively dovish tone of the statement, along with the dire growth outlook, mean we remain comfortable with our non-consensus view …
9th October 2020
Reasons for caution despite improvement in data This week brought some much-needed good news for India’s beleaguered economy. Activity data for September have been promising. The manufacturing PMI jumped to an eight-year high, while export growth turned …
After dragging its heels for several weeks, the government has finally appointed three new members to the RBI’s monetary policy committee (MPC). Not a great deal is known about their views on monetary policy but, given that the MPC tends to follow the …
6th October 2020
Signs of life in the recovery The rise in the September PMIs is a welcome sign that the economic recovery still has legs. But with new virus cases in India still high, the road to normality will almost certainly remain long and difficult. The PMI readings …
The narrowing in India’s goods trade deficit in September came on the back of a decent pick-up in external demand, while domestic demand showed encouraging signs of improvement too. But sustaining the pace of recovery in both will be difficult. India’s …
5th October 2020
Government dragging its heels once more We have become accustomed to central banks holding emergency meetings over recent months, but the RBI sprung a surprise this week by postponing at the last minute the meeting that was scheduled to conclude on …
2nd October 2020
Overview – The continued rapid spread of COVID-19 in India and the need for prolonged containment measures has plunged the economy into a double-digit contraction this year. A tepid fiscal response means the recovery will underwhelm too. The dire economic …
1st October 2020
Strength in manufacturing PMI won’t be sustained The jump in September’s manufacturing PMI reading to its highest in over eight years is a much-needed sign that the recovery still has some legs. But with India now a virus epicentre, containment measures …
Industrial recovery stutters The recent improvement in output in the core infrastructure industries came to an abrupt halt in August. With India now a virus epicentre, containment measures are likely to remain in place for a long time yet, which will …
30th September 2020
If ever there were a sign of how extraordinary economic developments have been this year, India recorded a stonking current account surplus in Q2. This is unlikely to last long, as oil prices will rebound, remittances drop and the goods trade deficit has …
Labour reform could boost longer term prospects Three labour reform bills ostensibly tabled in response to the coronavirus crisis were approved in both houses of parliament this week. The highlight of these new laws is that firms now only need to obtain …
25th September 2020
In contrast to many other economies, the 20% y/y slump in India’s services sector in Q2 was less pronounced than that in industry, which collapsed by almost 40% y/y. But we doubt that the “outperformance” of the services sector will last. Containment …
24th September 2020
Elevated inflation will keep new-look MPC on the side-lines next week But dire economic outlook means it will resume loosening cycle soon Markets expect no change for prolonged period We agree with market and analyst expectations that the Reserve Bank’s …
23rd September 2020
Success in bringing the COVID-19 outbreak under control in Pakistan, Sri Lanka and to a lesser extent Bangladesh has enabled activity in these places to rebound much faster than in India, where new infections continue to surge. This supports our view that …
22nd September 2020
Strength in car sales won’t last Data released this week show that new passenger vehicle sales jumped by 14% y/y in August, the first positive rate of growth since the nationwide lockdown and the strongest monthly number since 2018. (See Chart 1.) That …
18th September 2020
The widening in India’s goods trade deficit in August won’t put the external position at risk, but the underlying data suggest that the recovery in external and domestic demand is stuttering. India’s monthly goods trade deficit widened from $4.8bn in July …
16th September 2020
High core inflation to delay next rate cut Following the greater-than-expected rise in wholesale price inflation last month, it will come as some relief to policymakers that consumer price inflation held steady in August. That said, core inflation is …
14th September 2020
WPI inflation rises by more than expected Wholesale price inflation rose by more than most had expected in August, due mainly to a jump in the core component. A similarly sharp rise in core consumer price inflation last month – data will be released later …
Industrial recovery running out of steam The contraction in industrial output eased a little further in July but was still well below pre-virus levels. With India now on course to becoming the epicentre of the coronavirus, restrictions are likely to …
11th September 2020
On course for most cases in the world India this week overtook Brazil to become the second-worst affected country by the COVID-19 pandemic. Total cases now stand at almost 4.5m, and it is only a matter of time before India overtakes the US. After all, …
The use of traditional monetary policy tools alongside financial repression will keep government borrowing costs in India in check over the coming years. That should help to ensure that only modest fiscal tightening will be needed to put the public debt …
9th September 2020
Woeful Q2 to be followed by weak recovery GDP data released this week showed that the economy shrank by almost a quarter in Q2 (Q1 of FY20/21). As we highlighted in our Data Response , that was one of the most severe contractions anywhere in the world and …
4th September 2020
Still a very long way from normal The rise in the August PMIs pales in comparison with the falls during the lockdown and it is highly likely that output is still a very long way from pre-pandemic levels. Given the bleak economic outlook, we think the RBI …
3rd September 2020
Ongoing virus-related supply disruptions as well as one-off factors such as phone tariff hikes have kept inflation higher than we had anticipated over recent months. But with food inflation set to drop sharply and demand set to remain depressed, we are …
2nd September 2020
Manufacturing recovery will prove slow and fitful The rise in August’s manufacturing PMI is cold comfort when set against the extremely weak GDP data for Q2 released yesterday. And with new coronavirus cases showing no signs of abating, we think the …
1st September 2020
Almighty slump to be followed by weak recovery The 24% y/y slump in Indian GDP in Q2 (Q1 of FY20/21) is one of the largest peak-to-trough falls anywhere in the world. With the country still battling with its coronavirus outbreak, the rebound in India’s …
31st August 2020
RBI OMOs a sign of things to come The rise in government bond yields over recent weeks appears to have jolted the RBI into action. The central bank this week held an open market operation (OMO) in which it purchased long-dated bonds with the aim of …
28th August 2020
While some of the early epicentres of the coronavirus outbreak in India now appear to be getting infections under control, cases are rising quickly in several states that avoided an initial surge. This means more restrictions covering wider areas will …
27th August 2020
Small dividend makes Fin Min’s job harder The RBI’s annual dividend transfer took place this week and was met with far less fanfare compared to last year. That is in large part because the size of the transfer has reverted to more normal levels after a …
21st August 2020
The minutes of the Reserve Bank’s August policy meeting show that the MPC – of which three members are now due to step down – has turned notably more hawkish on the inflation outlook. But there are reasons to think that inflation pressure will ease and, …
If the monthly activity data are anything to go by, GDP data for Q2 (Q1 of FY20/21) due at the end of the month will show that investment slumped by more than 30% y/y. (See Chart 1.) That will prove the bottom given the lifting of lockdown measures since …
19th August 2020
India’s monthly goods trade balance swung back into deficit in July, but the fact that it remains small means that there is little concern regarding external stability. Nevertheless, the underlying data continue to show that both external and domestic …
17th August 2020
RBI measures ease shadow banking strains Severe strains in the shadow banking sector that were amplified during initial stages of the coronavirus crisis are showing signs of easing. Support measures from the RBI including hefty cuts to policy rates, a …
14th August 2020
Headline WPI inflation rises but remains low While the rise in headline wholesale price inflation was expected, underlying price pressures appear stickier than we had initially thought. We think these will still ease over the coming months, but the next …
High core inflation to delay next rate cut The unexpected jump in headline inflation last month was the result of core inflation being higher than we had anticipated. We suspect core inflation will eventually ease back due to the weakness of domestic …
13th August 2020
