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Employment damage could quickly reverse High-frequency data show that virus restrictions and voluntary social distancing continue to exert an economic toll, albeit less severe than last year. Labour market indicators are a case in point. Of course, there …
21st May 2021
Supply issues are holding back vaccinations New virus cases in India remain extremely high, though the slower pace of increase and lower share of tests returning positive offers some hope that the current wave is close to peaking. However, lacklustre …
14th May 2021
Cases stabilising in key states There are both glimmers of hope and causes for alarm in the latest infection numbers. On the one hand, there are early signs that the crisis in Maharashtra, Delhi and Uttar Pradesh might have peaked, with virus cases …
7th May 2021
With the surge in COVID-19 infections showing no signs of abating and containment measures being reimposed, concerns about spill-overs to the real economy are growing. So far, activity is holding up well . But policymakers are likely to be concerned by …
30th April 2021
Restrictions may need further tightening The surge in new COVID-19 cases in India and subsequent tightening of state-level restrictions has started to weigh on activity . (See Chart 1.) Chart 1: CE India Mobility Tracker (% Diff. from Jan.-6 th Feb. 2020, …
23rd April 2021
Headwinds to investment mounting Industrial production data released this week showed that output growth dropped further into negative territory in February. Looking at the breakdown, tepid capital goods production suggests that investment growth will …
16th April 2021
Talk of QE misses the bigger picture Much of the commentary following the RBI’s policy meeting this week – in which policy rates were kept on hold – has been on the announcement of a new programme (the so-called G-SAP) through which the central bank will …
9th April 2021
RBI will continue to target 4% headline inflation Economic Affairs Secretary Tarun Bajaj yesterday confirmed that the RBI’s current inflation target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, will be maintained for the next five years. …
1st April 2021
Bad debts set to pile up The Supreme Court this week lifted its ban on banks classifying delinquent loans as non-performing, reversing a measure that was introduced seven months ago. This is the last of the significant extra-ordinary banking sector …
26th March 2021
Persistent rise in infections could dent the recovery New daily COVID-19 cases in India have been rising over recent weeks, and on Thursday reached their highest level since early December. For now at least, this doesn’t appear to be a major threat to the …
19th March 2021
Rate hikes still a long way off Financial markets appear increasingly convinced that the RBI is on the cusp of fairly aggressive monetary tightening. A cumulative 100bp increase in interest rates this year is now being discounted, with the first rate hike …
12th March 2021
Upgrading our forecast for GDP growth in 2021 India’s financial markets have not been immune from the turbulence in global markets over the past couple of weeks, but the latest economic data have been largely positive. GDP data for Q4 2020 (Q3 of FY20/21) …
5th March 2021
Should the RBI target core inflation? Under current law, India’s government issues the RBI with an inflation target every five years. The current target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, runs until the end of next month. We’ve …
26th February 2021
Investment recovering, but headwinds remain The breakdown of the industrial production data for December showed a continued rebound in output of capital goods. On past form, this recovery suggests that our initial estimate that investment contracted by …
19th February 2021
RBI commits to low rates and ramps up OMOs… Indian yields rose significantly in the aftermath of the unexpectedly-accommodative Union Budget announcement but developments since have helped to reduce some of the upward pressure. Admittedly, the RBI kept …
11th February 2021
Banking reforms back on the agenda The dust is settling on the Finance Ministry’s unexpectedly accommodative Union Budget for FY21/22 delivered on Monday. We looked at various aspects of the announcement here and here . One topic mentioned by FM Nirmala …
5th February 2021
Finance Ministry faces a tough balancing act For India watchers, next week will be one of the most important of the year. On Monday, Finance Minister Nirmala Sitharman will unveil the Union Budget for FY21/22. We published a full preview of the Budget …
29th January 2021
Rupee to only appreciate slightly against dollar The RBI’s foreign exchange reserves climbed to a record high of $586bn in the first week of January, from $581bn at the end of 2020 and $461bn a year ago. (See Chart 1.) Recall that the recent sharp …
22nd January 2021
Long-term investment outlook still challenging Industrial production data released this week showed a renewed y/y contraction in output in November, but there are some positive to be taken from the breakdown. In particular, the capital goods output …
15th January 2021
Several challenges to widespread vaccination India crossed an important milestone in its attempts to tackle the pandemic this week with the emergency approval of the COVID-19 vaccines developed by Oxford/AstraZeneca and Bharat Biotech (an Indian …
8th January 2021
Looser target may not deliver looser policy Under current law, India’s government issues the RBI with an inflation target every five years. The current target of 4% CPI inflation, with a “tolerance band” of 2-6%, runs until the end of March 2021. Media …
18th December 2020
Emergency approvals will fast-track the recovery… Further developments this week on COVID-19 vaccine availability in India reaffirm the recent upward revisions that we made to our GDP forecasts . Three manufacturers have submitted applications to …
11th December 2020
Activity data indicate further recovery in Q4 The recovery in GDP was a touch faster than expected in Q3 , and activity data for November released this week point to a continued rebound in Q4. The manufacturing and composite PMIs dropped last month, but …
4th December 2020
Foreign purchases of equities at record highs Net portfolio inflows into India have surged this month. (See Chart 1.) This mirrors the jump in portfolio inflows to other EMs, suggesting that global factors have been at play, such as the US election …
27th November 2020
Lakshmi Vilas failure underlines banking woes Newsflow around the world continues to be dominated by the breakthroughs in the development of effective COVID-19 vaccines. There is still plenty of uncertainty but, as we assessed here and here , an effective …
20th November 2020
Effective vaccine wouldn’t restore economic health We looked at the implications of Pfizer’s COVID-19 vaccine trial for the global economy here . Plenty of uncertainty remains: the trial is not yet over, and it is possible that safety concerns could …
12th 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
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
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
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
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 …
9th 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
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
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
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, …
11th 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
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
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
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
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
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
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
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
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
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 …
3rd July 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
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
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 …
12th 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
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 …
29th May 2020