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Karnataka, at the forefront of the reform agenda The state election in Karnataka was held this week, with results due on Saturday. Our primer on why India’s state elections matter can be found here ; but the Karnataka election arguably matters more than …
12th May 2023
PMIs continue to be at odds with hard data The PMI surveys for April released this week suggest that both the manufacturing and services sectors in India started Q2 on a strong footing. The manufacturing PMI reached a 4-month high while the services PMI …
5th May 2023
Fall in the rupee this year likely to be limited The rupee is up by around 1% against the US dollar so far this year, leaving it in the middle of the pack among other EM currencies. (See Chart 1.) Chart 1: Currencies vs. US$ (% change, YTD) Sources: …
28th April 2023
Door remains ajar for further tightening… The minutes of the MPC’s April meeting – in which the committee voted unanimously to keep the repo rate on hold (at 6.50%) for the first time in a year – were published this week. While it has been clear for some …
21st April 2023
India becomes home to world’s largest population According to UN projections, India will today become home to the world’s largest population, displacing China from the number one spot. In truth, the exact timing of the transition is unknown: it may even …
14th April 2023
Raising exports to US$2trn by 2030 a tough task This week marked the start of the government’s new Foreign Trade Policy (FTP). While previous FTPs have had a five-year span and have typically focussed on financial incentives for exporters such as …
6th April 2023
Note: Join our 6th April online briefing all about the risks to EMs from banking turmoil. Register now . Rosneft, IOC deal will keep Russian oil flowing We’ve made the case in much of our research that, in an increasingly fractured global economy that …
31st March 2023
Labour reforms could encourage more MNCs The overarching message from our latest India Economic Outlook published this week is that while prospects for the economy look a little uninspiring over the near term, there are reasons to be optimistic further …
24th March 2023
Limited contagion, but Indian banks a worry Our coverage of the collapse of SVB and the turmoil at Credit Suisse and their implications for the global economy and financial markets can be found on our dedicated webpage . For India, the fallout so far has …
17th March 2023
Despite improvement, coal stocks remain low Fears over a shortage of coal in India have resurfaced in recent weeks amid expectations over another extremely hot summer, which would push up electricity demand. India remains heavily reliant on coal for …
10th March 2023
Following the release of GDP data for Q4 (Q3 of FY22/23) this week, we now know that the economy grew by 6.7% in 2022 as a whole, one of the fastest growth rates anywhere in the world. Output was 10% above pre-pandemic levels at the end of last year. (See …
3rd March 2023
MPC minutes highlight divergence of views The MPC minutes of the RBI’s policy meeting from earlier this month – in which the pace of tightening slowed to a 25bp hike , taking the repo rate to 6.50% – confirm that there are significant differences of …
24th February 2023
Food price inflation may be overstated The consumer price data for January released this week proved something of a nasty surprise , with the headline rate jumping unexpectedly sharply to 6.5% y/y, pushing it above the ceiling of the RBI’s 2-6% target …
17th February 2023
RBI still cautious on inflation Though the RBI slowed the pace of tightening with a 25bp hike to the repo rate (to 6.50%) this week, the tone of the communications was more hawkish than we had anticipated. The slight rise in the 10-year bond yield …
10th February 2023
Spill-overs from the Adani crisis limited, for now Though the FY23/24 Union Budget provided some respite, the short-seller attack on the Adani Group following the publication of a report by US-based Hindenburg Research alleging “brazen stock manipulation …
3rd February 2023
For watchers of India’s economy, next week is one of the most significant of the year as Finance Minister Nirmala Sitharaman delivers the Union Budget for FY23/24 on Wednesday. Ahead of the announcement, the fiscal position looks pretty healthy. The …
27th January 2023
More signs of a growing electronics ecosystem We argued at the end of 2022 that one of the key developments for investors to look out for this year was signs of a growing electronics ecosystem in India. We are only three weeks into the new year but there …
20th January 2023
Rupee settlement mechanism to see limited use It has been a relatively quiet start to the year on the economic front in India but a speech over the weekend from RBI Governor Shaktikanta Das has garnered attention. Among the highlights, Governor Das struck …
13th January 2023
PMIs increasingly at odds with hard data The PMI surveys for December released this week suggest that India’s economy was firing on all cylinders at the end of 2022. Both the manufacturing and services measures hit multi-month highs (see Chart 1), while …
6th January 2023
Will policy loosening come onto the agenda? A s we explained in our Outlook for Q1 2023 , the hiking cycle that has dominated the discourse for much of 2022 is likely to come to an end early next year. The question then is, when will thoughts turn to …
23rd December 2022
Rise in lending rates has further to run D ata released this week reinforce our view that domestic demand is softening. Industrial production dropped by 4% y/y in October – our in-house adjustment points to a similar-sized drop month-on-month. And …
16th December 2022
BJP win in Gujarat could boost reform agenda The incumbent BJP, under the leadership of Chief Minister Bhupendra Patel, secured a massive victory in the state election in Gujarat. The results announced on Thursday showed that it increased its assembly …
9th December 2022
Valuations may stall equity outperformance India’s Sensex hit a fresh record high of 63,000 this week (see Chart 1), continuing its remarkable performance over the past few months in the context of the sell-off in equities elsewhere in the world. The …
2nd December 2022
Manufacturing powerhouse takes to the polls We’ve previously written at length about why state elections in India matter for economic policy . The upcoming vote in Gujarat – due to take place between 1 st and 5 th December with results expected on the 8 …
25th November 2022
Domestic demand coming off the boil Recent data paint a mixed picture of the state of domestic demand. On the one hand, survey evidence remains relatively upbeat. The PMI readings for India have recently held up much better than in most other EMs and …
18th November 2022
Power sector appears to be managing coal better Power shortages just over a year ago prompted a push by the government to shore up coal supply. Among the changes was a revamp of benchmarks for the stocks of coal that power stations should hold. …
11th November 2022
Recent data tell a conflicting story about the health of India’s export sector. The new export orders component of the manufacturing PMI released this week rose to 56.6. It has only been higher on one occasion since the start of 2015 . By contrast, the …
4th November 2022
The RBI announced this week that it will hold an “additional” MPC meeting on Thursday 3 rd November. It’s not unusual for the committee to convene between scheduled meetings (the next meeting was due to take place in early December). Indeed, “emergency” …
28th October 2022
Limited macro fallout from sliding rupee The rupee has this week continued its slide against the US dollar, dropping to a record low of 83/$ on Thursday. As has been the case over the past few months, this has been the trigger for a series of alarmist …
21st October 2022
Apple production shift boosts local manufacturing Regular readers of our India research will be (perhaps all-too-) familiar with our view that the key to India sustaining rapid economic growth over coming decades is the development of its manufacturing …
14th October 2022
JP Morgan announcement won’t impact inflows After weeks of media speculation over an imminent addition, it was announced on Wednesday that India’s local-currency bonds will not be included in JP Morgan’s GBI-EM Global Diversified Index for the time …
7th October 2022
C/A deficit widens to multi-year high Data released this week show that India’s current account deficit widened to 2.8% of GDP in Q2, its largest since 2013. The data can however be volatile, so we prefer to take a longer perspective. In the year to Q2, …
30th September 2022
Drop in FX reserves not a macro concern Data to the first week of September show that the RBI’s FX reserves have dropped in value to US$550bn, the lowest level in almost two years. (See Chart 1.) While part of that is a valuation effect, it is mainly …
23rd September 2022
Goods trade deficit set to narrow further… Data released this week confirmed that India’s merchandise trade deficit retreated from a record high (in dollar terms) of US$30bn in July to US$28bn in August. This was driven in large part by a drop in oil …
16th September 2022
Index inclusion won’t transform outlook for bonds If media reports this week are to be believed, Indian local-currency bonds are on the cusp of being included in JPMorgan’s GBI-EM Global Diversified Index. Some are suggesting that this could happen this …
9th September 2022
New GDP forecasts GDP data released this week showed that growth surged from 4.1% y/y in Q1 to 13.5% y/y in Q2 (Q1 of FY22/23). But on our own seasonal-adjustment, that implied a gain of only 0.1% q/q. That seems improbably small given the strength of …
2nd September 2022
Foreigners’ net purchases of Indian equities have surged to near record levels in recent weeks. On a one-month rolling basis, inflows have only been higher in US dollar terms on one occasion, in December 2020. (See Chart 1.) Chart 1: Foreigners’ Net …
26th August 2022
Core inflation to offset falls in food & energy CPI data for July released last Friday indicated that the upside risks to food inflation we flagged earlier this year have not materialised. As we noted, food prices fell by 0.7% m/m in seasonally-adjusted …
19th August 2022
BJP-led NDA loses some clout For all its power in parliament’s lower house (Lok Sabha), a majority in the upper house (Rajya Sabha) has remained elusive for PM Modi’s BJP. As the main party in the National Democratic Alliance (NDA), it has been closing in …
12th August 2022
Trade data point to softening in exports Preliminary data released this week showed India’s goods trade deficit widening from a seasonally-adjusted $25.8bn in June to $29.3bn in July, the largest on record in dollar terms. But while the widening in the …
5th August 2022
Data to mid-July show that the RBI’s FX reserves have dropped to US$572bn, the lowest level in almost two years. (See Chart 1.) Chart 1: FX Reserves (US$bn)* Sources: CEIC, Capital Economics While part of that is a valuation effect, it is mainly due to …
29th July 2022
Remittances to support external position Remittances (money transferred by foreign workers back to their home countries) are an important and often underappreciated source of foreign currency for India. The RBI’s latest monthly bulletin released this week …
22nd July 2022
INR settlement unlikely to see widespread use The RBI announced earlier this week that it has put in place a mechanism for international trade to be settled directly in rupees “in order to promote growth of global trade” and “support the increasing …
15th July 2022
Trade tweaks to have offsetting impact… Following the reintroduction of the sovereign gold bond scheme in June, the government has further stepped up its attempts to reduce gold imports, with the Finance Ministry hiking the basic import tax on gold from …
8th July 2022
GST hikes don’t signify tighter fiscal stance… The Finance Ministry’s announcement this week of hikes to the GST rate on products ranging from hang glider parts to LED lamps comes as something of a surprise. After all, it goes against the grain of the …
1st July 2022
SGBS may help at margin to reduce gold imports Among the reasons for gold's continued popularity with families in India is its use as an inflation hedge. So it’s unsurprising that the recent surge in inflation has coincided with a renewed jump in gold …
24th June 2022
RBI holds firm in defence of the rupee Data late last week showing a larger-than-expected rise in core inflation in the US in May, and the Fed’s hefty 75bp hike this week, have contributed to a broad-based sell-off in global financial markets with many EM …
17th June 2022
RBI frontloading continues The key event this week was of course the Reserve Bank’s policy announcement, in which the MPC stepped up the pace of tightening by hiking the repo rate by 50bps to 4.90%. We wrote about the decision here , and discussed it in …
10th June 2022
Stage set for strong GDP growth in 2022… GDP data for Q1 (Q4 of FY21/22) released this week showed that the economy weathered the Omicron wave pretty well. Even though the annual growth rate slowed from 5.4% y/y in Q4 of 2021 to 4.1%, GDP still eked out a …
3rd June 2022
Governor Das confirms more rate hikes to come… RBI Governor Shaktikanta Das was in a candid mood when on media duties this week. Among the more notable comments, he said that the MPC would be revising up its inflation forecasts for this year and next in …
27th May 2022