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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 …
13th August 2020
The recovery in India’s industrial sector has stalled. Given the substantial damage caused during the lockdown and the likelihood of a re-imposition of containment measures, the road to normality for the sector will be long and difficult. Data released …
12th August 2020
Loan restructuring won’t prevent NPL surge In yesterday’s otherwise uneventful policy announcement, RBI Governor Shaktikanta Das introduced a new framework for banks to restructure loans to struggling borrowers. The move suggests to us that the debt …
7th August 2020
The only new step taken by the RBI today was the introduction of a new framework to help struggling borrowers manage their bank debt. The MPC voted unanimously to keep the repo and reverse repo rates on hold. But, with the growth outlook worsening amid …
6th August 2020
Economic recovery is beginning to stall The July PMI surveys have been a mixed bag but, taken together with evidence elsewhere, they suggest that the post-lockdown economic recovery is stalling. This adds to the case for further monetary easing, and we …
5th August 2020
Manufacturing recovery losing steam The small drop in July’s manufacturing PMI adds to signs elsewhere that the post-lockdown recovery is stalling. Looking ahead, the road back to normality for the manufacturing sector will be slow and fitful. India’s …
3rd August 2020
A difficult road ahead for Indian industry The contraction in India’s core infrastructure industries index eased slightly in June, but the weakness of industry will still have weighed heavily on GDP in Q2. What’s more, there are already signs that the …
31st July 2020
High-frequency data suggest loss of momentum The post-lockdown recovery has stalled over recent weeks. Our in-house COVID mobility tracker has edged down since the start of July. (See Chart 1.) Congestion levels in major cities are not much higher than …
30th July 2020
Signs that recovery is stalling should prompt further easing Aware of inflation risks, a smaller 25bp policy rate cut is likely next week But persistent economic weakness means loosening cycle won’t end there The Reserve Bank of India (RBI) has been …
28th July 2020
Debt moratorium extension no panacea The RBI appears close to announcing an extension to the six-month debt moratorium that is currently due to elapse at the end of August. That seems sensible. After all, it is helping smooth near-term cash flow issues …
24th July 2020
After hitting an all-time low in April, the rupee has strengthened by 3% against the US dollar as risk appetite has returned to global financial markets. (See Chart 1.) But while we think risky assets generally – and most EM currencies – will continue to …
22nd July 2020
Damage to banking sector will be long lasting Banking sector concerns have come back to the fore over the past week with state-owned bank Punjab National reporting yet another case of fraud, while warnings of an impending surge in non-performing loans …
17th July 2020
India’s monthly trade balance swung into its largest monthly surplus on record in June. But this is not something to celebrate since it is the result of continued weakness in domestic demand. Data released late yesterday show that the monthly goods trade …
16th July 2020
WPI inflation rebounds but remains low The wholesale price index is not the preferred measure of inflation for policymakers, but the broad-based rebound in the headline rate challenges our view that price pressures will ease this year. Nevertheless, given …
14th July 2020
India’s inflation receding after surge during lockdown Inflation in India appears to be easing after an initial surge when the lockdown first came into effect. We expect headline inflation to continue falling towards the RBI’s 4% target, which should …
13th July 2020
The slump in industrial production eased in May, confirming that the recovery in industry is now underway. But given the likelihood of a renewed tightening in containment measures and the substantial damage already caused during the lockdown, the road to …
Cases per capita argument misses important points India this week overtook Russia to become the third-worst affected country by the COVID-19 pandemic. As of Wednesday, confirmed cases in India stood at over 750,000, behind only the US and Brazil. It has …
9th July 2020
Daily price data suggest that food inflation has eased over recent weeks and, with demand also likely to remain depressed, inflation does not appear to be a pressing concern. The focus of policymakers should therefore be to support the economy as much as …
Overview – India’s failure to contain the coronavirus and the government’s underwhelming policy response mean the economy will suffer its largest drop in annual output on record this year. In addition, the recovery is likely to be one of the weakest among …
7th July 2020
Economic recovery underway but set to remain lacklustre The rebound in June’s services and composite PMIs suggests the economy is now on the long road to normality. But the recovery will be slow and fitful . India’s services PMI rose from 12.6 in May to …
3rd July 2020
More push back against Chinese influence Border tensions between India and China thankfully appear to have eased over the past couple of weeks but Indian authorities continue to push back against Chinese influence in the country. This week, 59 Chinese …
India’s current account swung into a rare surplus in Q1. That probably won’t last for long as oil prices rebound, remittances drop and the trade deficit starts to widen again over the coming months. But the deficit is likely to remain very small. And with …
1st July 2020
Activity picking up but recovery will be protracted Despite remaining below 50, the rise in June’s manufacturing PMI reading suggests to us that activity has picked up further as containment measures have been scaled back. However, the lasting damage …
Industrial recovery will be slow and protracted The contraction in India’s core infrastructure industries index eased a little in May, suggesting that the slump in industry has bottomed out. But activity is still very weak and, given the damage that has …
30th June 2020
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 …
29th June 2020
Rural economy bounces back, urban areas suffer As always, we need to treat Indian labour market statistics with caution, but unemployment data from CMIE released this week were noteworthy. They show that the rural unemployment rate dropped sharply from a …
26th June 2020
After tightening dramatically in March following the outbreak of the coronavirus, our proprietary index shows that financial conditions in India have eased substantially over the past couple of months. (See Chart 1.) This is in large part due to the RBI’s …
24th June 2020
Recent developments have strengthened the ruling BJP’s hand in the Rajya Sabha (the upper house of parliament). This should help to ease the passage of economic reforms, provided that the BJP has the appetite to pursue them. Efforts over the past month to …
22nd June 2020
Violence could trigger push back against China Himalayan border tensions between India and China are nothing new, but this week’s clashes takes them to a height not seen since the 1960s. We can only hope that tensions soon cool and there is no direct …
19th June 2020
Worsening employment prospects for Indian migrants in the Gulf and the US mean that remittance inflows are likely to drop even as lockdowns are eased. While this won’t have severe ramifications for the balance of payments position, it will weigh on …
17th June 2020
The slight easing in the y/y contraction in goods exports and imports in May supports evidence from elsewhere that the worst has now passed for the economy. But both remain extremely weak, and a sharp improvement appears unlikely as external and domestic …
16th June 2020
Inflation not a constraint on policy action Wholesale price inflation data for May show a broad-based easing in price pressures. This reinforces our view that inflation shouldn’t be a barrier to further policy loosening, and we expect the RBI to further …
15th June 2020
Industrial output ground to a halt in April but high-frequency indicators including electricity consumption and air pollution levels suggest that activity has edged up since then. However, lasting damage from the lockdown and the threat of further sharp …
Lockdown severely curtails monthly data This Data Response was originally sent to clients as a Rapid Response on Friday 12 th June 2020. As a result of the Statistics Office being only partly operational due to India’s nationwide lockdown, the headline …
12th June 2020
Activity edging up but recovery will be slow The impact on activity from the gradual scaling back of the lockdown over recent weeks is showing in the high-frequency data. Traffic congestion in major cities is edging up, while data from Apple show a rise …
Lockdowns are being eased in India, Pakistan and Bangladesh without any sign that coronavirus infections are being brought under control. Economic recoveries will face greater headwinds than in places where the virus has been contained as a result. But …
9th June 2020
The minutes of the Reserve Bank’s late May policy meeting – in which it trimmed both the repo and reverse repo rates – show that the MPC has become markedly more bearish on the outlook for economic growth amid the coronavirus containment hit. And with …
8th June 2020
Little market reaction from Moody’s downgrade Moody’s announced this week that it has cut India’s local and foreign-currency sovereign ratings from Baa2 to Baa3, leaving them just one notch above junk status. Moody’s cited the deteriorating fiscal …
5th June 2020
Daily price data give a strong indication that food inflation dropped in May, most likely as supply disruptions eased a touch and agricultural activity was allowed to resume. With global oil prices low and domestic demand collapsing, there is little …
4th June 2020
Services past the worst, but recovery will be lacklustre Interpreting the PMI surveys in the current environment is tricky, but the small rise in May’s services PMI suggests to us that activity has edged up very slightly. Nevertheless, fears over …
3rd June 2020
Prime Minister Modi’s BJP has expedited structural reforms that normally face stiff political resistance, ostensibly as part of efforts to support recovery from the coronavirus crisis. These moves will do little to boost demand in the near term. But if …
2nd June 2020
Activity edges up but substantial recovery is a long way off The nature of the PMI surveys makes them tricky to interpret in the current environment, but we think May’s manufacturing reading indicates that activity in the sector edged up slightly last …
1st June 2020
Relative resilience won’t last According to the official GDP data, India’s economy held up rather well in Q1 as a whole given that a stringent lockdown was imposed in the second half of March. But the data are increasingly subject to significant revisions …
29th May 2020
Activity edging up… PM Modi is likely to extend the lockdown when he addresses the nation on Sunday. However, restrictions are set to be eased significantly, continuing the trend since the start of May. Indeed, domestic flight and train services have been …
Amid the severe economic damage that the coronavirus and containment measures have caused, one potential positive is the greater prevalence of cashless payments as people make more purchases from home or transfer less physical cash to prevent the virus …
28th May 2020
The RBI has further stepped up its response to the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank has also left the door open for further loosening and, with the …
22nd May 2020
Resuming transport services a big risk Policymakers decided this week to further loosen containment measures by allowing some travel to resume. Restrictions on interstate passenger trains have been partially lifted, while domestic flights are due to …
Despite a stringent lockdown that has lasted nearly two months, new recorded cases of COVID-19 in India remain on a sharp upward trajectory and hit a record high yesterday. (See Chart 1.) The true number of cases is likely to be higher still given limited …
20th May 2020
The final details of the stimulus package reinforce our initial take that, while helpful in limiting downside risks to the economy, it will do little to boost demand in the near term. With the lockdown also being extended again (until the end of May), a …
18th May 2020
The 60% y/y contraction in goods exports and imports in April highlights the extreme weakness of external and domestic demand. This will probably mark the bottom as restrictions on activity are gradually pared back in India and the rest of the world, but …
