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Phone tariff hikes no immediate concern for RBI India’s three largest telecoms firms (Vodafone, Bharti Airtel and Reliance Jio) revealed this week that they will simultaneously raise mobile phone tariff prices at the start of next month. This appears to …
22nd November 2019
Q3 GDP data due next week are likely to show a further slowdown in India’s economy, with the industrial sector the main source of weakness. However, some comfort can be taken from the fact that the services sector – which accounts for over 50% of the …
We couldn’t agree more with recent comments from RBI Governor Shaktikanta Das that much better governance is needed to improve the long-term health of the banking sector. The problem stems in large part from the outsized role of the state. Privatisation …
18th November 2019
The monthly goods trade deficit was virtually unchanged in October and we think that it will remain small over the coming quarters as low oil prices continue to keep a lid on imports. Data released on Friday evening show that India’s monthly goods trade …
Monthly data suggest another weak quarter in Q3 After a very weak first half of the year, the latest monthly data suggest that the economy hasn’t fared any better in the second half. Data released this week show that industrial production contracted 4.3% …
15th November 2019
Headline WPI inflation drops to 40-month low Wholesale price inflation is not the preferred measure of inflation for India’s policymakers, but the fact that the headline rate dropped to a 40-month low in October won’t go unnoticed. Another rate cut in …
14th November 2019
Inflation above-target for first time since mid-2018 The first above-target inflation reading since July last year should not push the Reserve Bank of India off its rate-cutting course. While the headline figure is being driven by a spike in food prices …
13th November 2019
Gloom in industry deepens The downturn in India’s industrial production deepened in September with the result that, on this measure, industry contracted slightly across Q3 as a whole. More policy easing is likely in order to turn the economy around. Data …
11th November 2019
Moody’s decision to cut its outlook on India’s sovereign rating is based in part on the government’s struggle to rein in the fiscal deficit. This is justifiable if a little behind the curve. But the ratings agency’s decision is also based on its …
8th November 2019
India drags its heels on trade agreement India this week opted out of the Regional Comprehensive Economic Partnership (RCEP), the Asia-wide trade deal that will be among the largest in the world when it finally becomes operational. The potential benefits …
Headline consumer price inflation is likely to have risen above the RBI’s 4.0% target for the first time in 15 months in October due to another jump in food inflation. This won’t dissuade the central bank from loosening policy further in the near term. …
7th November 2019
Finance Ministry easing alongside the RBI Only a few weeks after corporate taxes were cut, media reports this week suggest that the government is considering a reduction in the personal income tax rate, as well as an abolition of taxes on dividends paid …
1st November 2019
Drop in manufacturing PMI should reverse soon The drop in the manufacturing PMI in October to a two-year low is a worrying sign that business conditions have further deteriorated. But with fiscal policy being loosened and further monetary easing still on …
Three years after the shock announcement that the bulk of India’s bank notes were being withdrawn, any benefits from “demonetisation” should be evident by now. But the promised gains haven’t materialised and the inadvertent economic positives that have …
30th October 2019
Rajya Sabha majority still on the cards The BJP’s disappointing performance in the Haryana state election is a setback for the government, but its victory in Maharashtra still leaves it on course to gain a majority in the Rajya Sabha (upper house). In …
25th October 2019
Local bond yields have dropped over the past few months (see Chart 1) as the Reserve Bank has continued easing monetary policy, but we think they will start rising again before long. Fiscal policy has been loosened substantially - the finance ministry …
23rd October 2019
Credit growth will pick up as lending rates fall Data released this week showing that credit growth to the private sector dropped to a two-year low in September (see Chart 1) have raised concerns that the monetary transmission mechanism is lacking …
18th October 2019
India’s goods trade deficit narrowed to a seven-month low in September and we think that it will remain small over the coming quarters as low oil prices continue to keep a lid on imports. Data released yesterday show that India’s monthly goods trade …
16th October 2019
Upcoming state elections could help determine the pace of economic reform in India over the coming years. A win for the BJP in Haryana could provide reassurance for state assemblies elsewhere that contentious reforms need not be electorally unpopular. …
15th October 2019
Surge in headline inflation won’t worry the RBI yet The jump in headline consumer price inflation in September won’t prevent another policy rate cut from the Reserve Bank, particularly since it was largely due to damage to farmers’ harvests rather than …
14th October 2019
Persistently weak WPI inflation raises likelihood of another rate cut The weakness in wholesale price inflation in September is likely to persist until the end of the year and, although not the preferred measure of inflation for India’s policymakers, …
Slump in output should be temporary The contraction in India’s industrial production in August is alarming but it should prove temporary as the effect of recent policy easing kicks in. Data just released show that industrial production growth turned …
11th October 2019
Slip in competitiveness ranking should reverse The World Economic Forum’s (WEF) Global Competitiveness Index for 2019 released this week showed that India’s ranking slipped 10 places to 68 th out of 141 countries. (See Chart 1.) Chart 1: India’s WEF …
Overview – India’s economy slowed sharply in the first half of the year but, with policy support being stepped up, growth should gradually recover. And despite the recent soft patch for the economy, we remain optimistic about India’s longer-term …
8th October 2019
Headline consumer price inflation is likely to have jumped in September on the back of a surge in onion prices. But that’ll hardly bring tears to the eyes of the RBI, as it is likely to have stayed below the 4.0% target. Another rate cut in December seems …
7th October 2019
The Reserve Bank reverted back to a 25bp rate cut today and has left the door open for further easing in the near term. But we are firmly non-consensus in expecting modest rate hikes by the end of next year. The MPC’s decision to cut the repo rate for …
4th October 2019
PMC Bank fraud highlights governance concerns India’s authorities have recently received plaudits for their efforts to clean up the banking sector. But news this week of a fraud scandal at the Punjab & Maharashtra Co-operative Bank (PMC Bank) is a stark …
PMI reading hasn’t yet reflected corporate tax cut boost The manufacturing PMI reading held steady in September, but this barely captured the impact of the recent large-scale corporate tax cut. Looser fiscal policy and the likelihood of further monetary …
1st October 2019
India’s current account deficit narrowed a touch in the four quarters to Q2 and looks unlikely to balloon any time soon as imports of key commodities remain in check. Meanwhile, FDI inflows edged up in Q2 and are likely to rise over the coming quarters as …
Equity market exuberance likely to fade… The large-scale fiscal stimulus announced last Friday by Finance Minister Nirmala Sitharaman has continued to reverberate in markets. While most Asian equity markets have dropped, the Sensex is up by 2.5% this …
27th September 2019
Another rate cut next week looks a done deal… …but MPC may opt for more traditional 25bp rate cut rather than 35bp In contrast to markets, we expect modest hikes next year The key question ahead of the MPC meeting that concludes on Friday 4 th October is …
26th September 2019
Fiscal loosening measures announced by Finance Minister Nirmala Sitharaman today are likely to provide a small boost to economic growth over the coming quarters, but significantly increase the chances of the ministry missing its budget deficit target this …
20th September 2019
Tax breaks, weaker rupee will have limited impact India’s goods trade deficit held steady at a low level in August. (See here .) However, export growth in value terms dropped to -6.0% y/y. Even focusing on the three-month average to smooth out monthly …
The latest activity data for India have been disappointing but, despite the economy’s recent soft patch, developments over the past month should boost optimism over long-run prospects. In late August, the government announced that it was easing …
19th September 2019
Since securing re-election this year, the Modi government has made it a formal aim to almost double the size of India’s economy to US$5trn by March 2025. In our view, the government is likely to fall short of this lofty ambition. Even so, we think that …
17th September 2019
Rate cut almost certain as WPI inflation remains weak Wholesale price inflation is not the preferred measure of inflation for India’s policymakers but even so, the continued weakness in the headline rate in August increases the likelihood of another rate …
16th September 2019
The goods trade deficit was virtually unchanged in August and, even if export growth stays weak, we think that the shortfall will remain small over the coming quarters. Data released on Friday evening show that India’s monthly goods trade deficit widened …
Car sales data may overstate consumption weakness Data released this week show that new passenger vehicle sales slumped by over 30% y/y in August. This was the biggest monthly decline since records began in 2003. (See Chart 1.) This has inevitably …
13th September 2019
Another rate cut likely with inflation holding steady Headline consumer price inflation held steady in August and remained comfortably below the RBI’s target of 4.0%. This is the last set of CPI data that will be released before the MPC next meets in …
12th September 2019
Gold imports to remain low Gold prices remain close to all-time highs in rupee terms, but the latest numbers on gold import volumes should assuage any concerns over the impact on the external position. Government officials announced this week that gold …
6th September 2019
Headline consumer price inflation is likely to have risen in August, due in large part to a renewed pick up in food inflation. But it will remain comfortably below the RBI’s 4.0% target. And given the weakness of GDP growth in Q2, further rate cuts are …
The government’s plan to merge several state-run banks is another step in the right direction towards fixing the beleaguered system. It follows a recent increase in the size of the recapitalisation package and strengthening of the bankruptcy code. But …
2nd September 2019
PMI readings paint healthier picture for manufacturing than GDP data Despite dropping in August, the recent manufacturing PMI readings paint a healthier picture of the sector than the Q2 GDP data released last week. That said, they won’t provide a hurdle …
More weakness in Q2 Another unexpectedly weak quarter of growth in India strengthens the case for further easing of fiscal and monetary policy. We expect both over the rest of this year. GDP growth slowed from 5.8% y/y in Q1 to 5.0% in Q2. This was the …
30th August 2019
RBI capital transfer will strengthen fiscal position… The RBI’s announcement this week that it would transfer a record dividend to the finance ministry in the current fiscal year on the recommendation of a panel study has a number of important …
Measures announced by the government yesterday to loosen restrictions on FDI are a welcome step and we think that further reforms aimed at attracting foreign investment are likely over the coming months. That bodes well for India’s external position and …
29th August 2019
Corporate tax cut indicative of looser fiscal stance Hot on the heels of Prime Minister Modi’s recent call for looser policy to support economic growth (see here ), a government panel this week recommended that the corporate tax rate for all companies be …
23rd August 2019
The minutes of the Reserve Bank’s August policy meeting suggest that the MPC’s larger-than-expected rate cut was intended in part to send a dovish signal rather than simply being a case of “front-loading” loosening. This supports our view that further …
22nd August 2019
The rupee has fallen by around 4% so far this month, underperforming all other major currencies in Asia. Growing risk aversion amongst investors in recent weeks has resulted in broad losses in EM currencies, but the rupee has been further impacted by …
21st August 2019
Further loosening still likely in near term In a wide-ranging interview with the Economic Times published this week, Prime Minister Modi commented on several economic issues. Plenty of emphasis was placed on the measures taken to revive economic growth …
16th August 2019
