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Package will have limited impact on demand After weeks of inaction, the government has made a splash with its new support package by spreading the details across three separate announcements (and counting) this week. Table 1: Breakdown of COVID-19 Relief …
15th May 2020
Inflation not a constraint on policy action The partial release of the WPI inflation figures for April strongly suggest that the headline rate has dropped. This supports our view that the inflation outlook shouldn’t be a concern for policymakers, whose …
14th May 2020
The new fiscal stimulus will substantially push up India’s already-high public debt ratio. Policymakers may have to resort to unusual steps to keep borrowing costs in check, including further financial repression and a return to partially monetising the …
Prime Minister Modi’s 10% of GDP support package sounds impressive but the details just announced make clear that it has been bulked out for effect. Extra demand-boosting measures are worth less than 4% of GDP. The new support limits the downside risks …
13th May 2020
Inflation locked down, worse still to come for industry This Data Response was originally sent to clients as a Rapid Response on 12 th May 2020. As a result of the Statistics Office being only partly operational due to India’s nationwide lockdown, the …
Industrial output slumped in March and more timely evidence from the manufacturing PMI, electricity consumption and vehicle production strongly suggest that the sector has come to a near standstill in April and May. What’s more, with lasting damage …
12th May 2020
Loosened restrictions having very small impact While the nationwide lockdown has again been extended (this time until 17 th May), the latest phase includes a significant relaxation of containment measures in so-called “green zones” where there have been …
8th May 2020
Given growing worries about public health and the devastating economic impact of India’s lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow …
7th May 2020
Services faring far worse than manufacturing The extraordinary plunge in the services PMI highlights that services is faring far worse than the manufacturing sector in the current crisis. Looking ahead, the services sector is likely to suffer for longer. …
6th May 2020
India’s economy is all but certain to contract this year for the first time since 1979. And the government’s reluctance to respond to the coronavirus crisis as aggressively as those elsewhere means that the recovery will be slow too, as household and …
Manufacturing PMI plunges to record low The astounding plunge in India’s manufacturing PMI to a record low in April strongly indicates that the nationwide lockdown has caused activity to collapse. Looking ahead, with the shutdown now extended for another …
4th May 2020
Industrial activity to remain in the doldrums India’s core infrastructure industries index contracted sharply in March, suggesting that overall industrial output will have fallen by a similar magnitude. The lockdown only began towards the end of the …
30th April 2020
Labour market weakness, risk aversion heightened The immediate economic consequences of the virus and the measures to contain it are clear as day in the data, with most activity indicators having fallen off a cliff in March. However, there are now growing …
The RBI’s new special liquidity window should help ease redemption pressure on Indian mutual funds, which have come under strain since Franklin Templeton’s announcement on Thursday that it has been forced to close six of its debt schemes. But another …
27th April 2020
Second package is already too late After an underwhelming first attempt, a second fiscal stimulus package in response to the coronavirus and containment measures appears close following reports of a meeting between PM Modi and Finance Minister Nirmala …
24th April 2020
Measures to contain the spread of the coronavirus will increase strains among traditional banks, but the shadow banking sector – still reeling from a large-scale default 18 months ago – is likely to fare even worse. Shadow banks have tended to lend to …
22nd April 2020
The government’s reluctance to provide significant financial support for firms and households during lockdown means that non-performing loans are likely to surge. One legacy of the coronavirus in India is therefore likely to be an impaired banking sector …
21st April 2020
The RBI has taken further steps to help banks and borrowers weather the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank also left the door open for further loosening, …
17th April 2020
March data show extreme weakness… A number of data releases this week confirm that economic activity took an enormous hit in March amid the nationwide lockdown. Trade data show that both export and imports slumped by over 30% y/y . That was far worse than …
The collapse in both exports and imports in March highlights the extreme weakness of external and domestic demand. What’s more, the worst is yet to come as lockdowns to contain the spread of the coronavirus remain in place in both India and abroad. …
16th April 2020
Inflation not a concern for policymakers Although not the preferred measure for policymakers, the drop in the headline WPI rate in March reinforces our view that inflation is no concern at this stage. Instead, the priority now is for the central …
15th April 2020
PM Modi’s decision to extend the nationwide lockdown that was due to end today comes as no major surprise given that coronavirus cases in India continue to surge. With many households having no savings buffers and large parts of the economy remaining …
14th April 2020
Inflation no concern for policymakers Headline CPI inflation dropped to a four-month low in March and timely indicators suggest a further easing in price pressures so far in April. With inflation no concern, the priority for policymakers is to loosen …
13th April 2020
Timely indicators on electricity demand, vehicle production and air quality strongly suggest that industrial activity has fallen off a cliff since the nationwide lockdown began on 25 th March. These indicators will be worth watching closely when the …
9th April 2020
Containment measures not yet slowing virus spread Over two weeks have passed since India’s nationwide lockdown began. With restrictions initially scheduled to end next Tuesday, policymakers face a dilemma. On the one hand, despite India having more …
Given the concerns about public health and the impact of the national lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow policy to be kept …
8th April 2020
The Finance Ministry’s response to the coronavirus so far has been tepid and, unless it steps up, it risks turning the public health crisis into a humanitarian and banking crisis. We assume it will do a lot more. One issue is that further stimulus will …
7th April 2020
Far worse is yet to come The drop in the PMI readings for March suggests that the economy had already lost momentum even before the nationwide lockdown was imposed towards the end of the month. More timely indicators suggest that activity has now ground …
6th April 2020
Real-time indicators reveal slump The compilation of activity data for March and April will be severely curtailed as the Statistics Office is only partly operational amid the nationwide lockdown. That has placed extra importance on surveys and …
3rd April 2020
We have compressed this edition of the Outlook to focus it on the most timely indicators. Overview – Strict containment measures in response to the coronavirus outbreak in India will have severe economic repercussions. We think the economy will grow by …
2nd April 2020
Worst is yet to come India’s manufacturing PMI dropped to a four-month low in March and the reading has yet to capture the impact of the nationwide lockdown which began at the end of the month. April’s reading, and possibly beyond, will be far worse. …
The RBI has emphatically stepped up its response to the economic and financial market fallout from the coronavirus outbreak with another emergency announcement today. It has also left the door wide open for further monetary loosening. A similarly-bold …
27th March 2020
Fiscal loosening will need further ramping up Finance Minister Nirmala Sitharaman yesterday took her first shot at responding to the coronavirus outbreak – as well as measures to contain it – by announcing a fiscal package worth INR1.7trn (US$22bn, 0.7% …
RBI’s response to coronavirus has so far been limited But outbreak and containment measures should prompt aggressive loosening Repo, reverse repo and cash reserve ratios all likely to be trimmed by 50bp The RBI has so far taken only piecemeal steps in its …
26th March 2020
The measures to contain the spread of the coronavirus announced by PM Modi last night will be hard to fully implement but will still have severe economic repercussions. We now expect the economy to grow by just 1% this year, the weakest pace of annual …
25th March 2020
The number of confirmed coronavirus cases in India is now rising sharply and, in response, most states have implemented full or partial lockdowns. With many households likely to have very low savings buffers, the central government will urgently need to …
24th March 2020
Foreign portfolio flows out of India’s markets have surged over the past month to more than double the peak during the “Taper Tantrum” in 2013, which pushed India to the brink of a balance of payments crisis. Higher foreign exchange reserves and a smaller …
23rd March 2020
PM Modi, Governor Das take measured steps Both Prime Minister Modi and RBI Governor Das took cautious steps in their responses to the coronavirus outbreak this week. In his address to the nation last night, PM Modi announced a 14-hour self-curfew to take …
20th March 2020
Prime Minister Modi’s address this evening seemed intended mainly to raise awareness of the threat posed by the coronavirus in India. With case numbers still low, the government has taken few measures to contain the domestic spread. But the difficulty of …
19th March 2020
It has been a dreadful few weeks for India’s economy. This started with the release of GDP data showing that growth in Q4 slowed to its weakest pace since 2013. (See Chart 1.) And hopes of a near-term recovery have been well and truly snuffed out since …
The RBI announced some measures to boost bank liquidity in a hastily-arranged press conference today but disappointed the bond market by not lowering policy rates. With the coronavirus a growing threat to domestic activity, we think rates will be trimmed …
16th March 2020
Drop in WPI inflation increases rate cut chances amid virus threat The drop in wholesale price inflation in February is an added source of comfort for the RBI following the fall in CPI inflation last month. We think it will follow its global peers by …
India’s merchandise trade deficit narrowed to a one-year low in February and the collapse in oil prices since then should push the deficit even lower in the months ahead. As such, we now expect the current account to swing into surplus – a crucial …
Travel ban only the start of tougher measures The government’s announcement this week that it will suspend virtually all foreign visas for at least 30 days in a bid to contain the spread of the coronavirus won’t in itself have a major bearing on the …
13th March 2020
The plunge in oil prices over the past week means there’s a good chance that India records a rare current account surplus over the coming quarters. This should help to ensure that the rout in local financial markets – trading on the Sensex had to be …
Drop in headline inflation sets scene for renewed policy rate cuts February’s drop in consumer price inflation leaves the headline rate still well above target. But inflation is likely to fall further. In any case, with coronavirus risks mounting, the …
12th March 2020
The rising number of new coronavirus infections in Asia beyond China has largely been confined to Korea and Japan. But poor healthcare provision, the density of population and high levels of internal migration in the early stages of the monsoon season …
11th March 2020
Though the RBI’s takeover of Yes Bank is intended to reduce the direct threat posed by the failing bank to India’s financial stability, the measures that have been implemented could exacerbate systemic weakness in the banking system. This adds to the …
9th March 2020
Concerns over coronavirus are growing The rapid spread of the coronavirus looks increasingly likely to hamper domestic demand. Admittedly, at the time of writing the number of confirmed cases in India stands at 30, which is low in such a large population. …
6th March 2020
Headline consumer price inflation is likely to have dropped sharply in February, in large part due to a moderation in food inflation. This should further embolden the RBI to follow its global peers and cut interest rates over the coming weeks in response …
5th March 2020
