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Q2 contraction to give way to strong Q3, but downside risks remain The record y/y rise in Indian GDP in Q2 (Q1 of FY21/22) was due entirely to base effects. We estimate that the economy shrank by 12% in q/q terms as India struggled with its Delta …
31st August 2021
Virus positivity rate in Kerala still rising Earlier this month, we flagged the sharp rise in new virus cases in Kerala as a key risk to economic recovery. On the face of it, there are encouraging signs that the outbreak is being brought under control. …
27th August 2021
Foreign portfolio outflows from Indian financial markets have been easing this month (see Chart 1), bucking the broader EM trend. This may have been driven in part by the improvement in the virus situation. Looking ahead, the growing likelihood of the US …
25th August 2021
The minutes of the Reserve Bank’s August policy meeting show the first signs of dissent as MPC member Jayanth Varma argued that a hike in the reverse repo rate and a change in policy stance would be prudent to show that the committee remains committed to …
23rd August 2021
Normalisation still some way off… We’ve argued for some time that the RBI is in no rush to join several of its emerging market peers in tightening monetary policy. That view was reinforced by the MPC’s relatively dovish communications at this month’s …
20th August 2021
Further falls in WPI inflation likely The drop in India’s headline wholesale price inflation in July came on the back of an easing in fuel and food inflation, both of which have further to run. And with headline CPI inflation having already peaked, we …
16th August 2021
The widening in India’s goods trade deficit in July was due in large part to the continued rebound in imports as containment measures were scaled back further. The trade deficit may widen a little further over the coming months but the big picture is that …
Efforts to boost supply won’t have big impact Concerns continue to build over a new virus wave in India. While daily infections at the national level remain low, they are still elevated in Kerala and are now also rising in a handful of other states. These …
13th August 2021
Drop in India’s inflation has further to run India’s consumer price inflation dropped below the 6% upper limit of the RBI’s target range in July, and we think further falls are likely. With the economy also still weak, there should be little doubt that …
12th August 2021
The Reserve Bank kept the repo rate on hold at a record low today and announced plans to ramp up government bond purchases on the secondary market, underlining its commitment to supporting the economic recovery. We don’t expect policy normalisation to …
6th August 2021
Rising infections in Kerala a big cause for concern Economic activity has been staging a very strong recovery since the second virus wave receded. But we’ve argued for some time that the rapid reopening would increase the risk of new outbreaks, …
Recovery takes hold, but new virus waves a key risk The rebound in India’s PMI surveys in July provides further evidence that the economy was quick to get back on its feet after the second virus wave. But the rapid reopening, combined with low vaccination …
4th August 2021
The postponement of the planned privatisation of two state-owned banks to next year has dealt an all-too-familiar blow to the Finance Ministry’s hopes of raising significant revenues from asset sales in FY21/22. Rather than relaxing the overall fiscal …
3rd August 2021
Manufacturing recovery underway The sharp rebound in India’s manufacturing PMI in July adds to evidence that the economy has been staging a strong recovery ever since the second virus wave receded. But with vaccine coverage still low, sustained …
2nd August 2021
The industrial recovery is underway India’s core infrastructure industries index rebounded in seasonally-adjusted m/m terms in June, suggesting that an industrial recovery is well underway. The core infrastructure industries index measures output in …
30th July 2021
A bankruptcy code to aid the COVID recovery The amendments to the Insolvency and Bankruptcy Code (IBC) that were approved in the Lok Sabha (lower house of parliament) this week would, if passed in the Rajya Sabha, provide much-needed support to India’s …
RBI likely to keep rates on hold next week as inflation pressure looks set to ease Central bank will underline its commitment to supporting the economic recovery Policy normalisation will happen only very gradually, and not until well into next year …
29th July 2021
Activity already close to pre-virus levels One key lesson from the past 18 months is that economies can rebound quickly once virus waves have subsided. Even with this mind, the pace at which activity in India has rebounded from its second wave has been …
23rd July 2021
Amid the ongoing debate over inflation in a post-pandemic world, one thing that does appear clear is that near-term price pressures in India have peaked. Consumer price inflation held steady in June at 6.3% y/y, while wholesale price inflation dropped for …
21st July 2021
Bad bank will help to improve balance sheets The contours of India’s long-awaited National Asset Resconstruction Company (NARCL) – or “bad bank” – have emerged over the past couple of weeks. In recent decades, bad banks have been used to clean up …
16th July 2021
The widening in India’s goods trade deficit in June came on the back of a rebound in imports amid the lifting of containment measures and the recent rally in global oil prices. But while the economic recovery has further to run, we think that oil prices …
WPI inflation has peaked Wholesale price inflation dropped for the first time in five months in June and is set to fall sharply over the coming months as commodity prices drop back. With headline CPI inflation also likely to have peaked last month, we …
14th July 2021
Headline inflation has likely peaked India’s consumer price inflation remained above the 6% upper limit of the RBI’s target range for a second consecutive month in June. But if we are right in thinking that inflation has peaked, the central bank won’t see …
12th July 2021
Inflation won’t threaten monetary policy outlook The yield on India’s ten-year government bond this week jumped to its highest since the start of April. (See Chart 1.) Overnight index swap rates have also spiked since mid-June. Taken together, they point …
9th July 2021
The government’s latest vaccine supply projections suggest that India could fully vaccinate all adults by year end. But that hinges on optimistic assumptions about production and distribution. Unless supply and logistical issues constraining the rollout …
7th July 2021
PMI readings to soon rebound, but downside risks still significant The drop in India’s PMI readings for June should soon reverse as the second virus wave has subsided and restrictions are being eased. But a rapid reopening increases the risks of fresh …
5th July 2021
Fiscal package won’t significantly raise the deficit Finance Minister Nirmala Sitharaman unveiled an array of new fiscal measures this week. (See Table 1.) The bulk of them are aimed at softening the economic blow from the second virus wave. They should …
2nd July 2021
Overview – India’s ferocious second virus wave is subsiding as quickly as it emerged, enabling the recovery to get back on track. However, the rapid scaling back of containment measures that is underway increases the threat of further outbreaks. And …
1st July 2021
Manufacturing still impacted by second virus wave The drop in India’s manufacturing PMI in June suggests that the recent plunge in new virus cases has yet to translate into a pick-up in manufacturing activity. The recovery should get back on track as …
Industry has taken a sizeable hit India’s core infrastructure industries index dropped sharply in m/m terms in May, suggesting that the second virus wave has taken a large toll on industry even though it has been subject to fewer restrictions than a year …
30th June 2021
Rollout gathers pace but doubts remain India’s COVID-19 vaccine rollout appears to have shifted into a higher gear. Daily vaccinations have more than doubled over the past couple of weeks, and on Monday India reported administering a whopping 8.7mn doses. …
25th June 2021
India’s 10-year government bond yields have remained stable at around 6% over the past month, taking the unexpectedly large jump in inflation in May and a more hawkish turn by the US Fed in their stride. That reinforces our long-held view that borrowing …
23rd June 2021
The recent jump in India’s consumer price inflation has taken us (and most others) by surprise and we have revised up our near-term forecasts. However, a big chunk of the surge – even in the most closely-watched core measure – can be explained by rising …
22nd June 2021
Recovery might be faster than we are expecting The continued drop in new COVID-19 infections – to their lowest now since April – has coincided with a rebound in the real-time activity data. One striking example is the pick-up in railway passenger …
18th June 2021
India’s goods trade deficit narrowed to an eight-month low in May as exports held up much better than imports. Strong external demand will help to offset some of the damage to domestic demand caused by the virus surge and ramping up of containment …
16th June 2021
Larger-than-expected jump in inflation should reverse soon India’s consumer price inflation jumped to a six-month high in May on the back of an unexpected surge in core inflation, which we suspect is a result of rising commodity prices now seeping into …
14th June 2021
WPI inflation close to peaking Wholesale price inflation surged to a three-decade high in May on the back of the sharp rise in global commodity prices and will be a concern for policymakers. However, there are reasons to think that WPI inflation has …
Subdued industry delivers triple-digit growth There is unlikely to be a clearer illustration of the distorting impact of base effects than the 134% y/y rise reported in Indian industrial production in April. Industrial output actually dropped in April as …
11th June 2021
Rains still have a significant economic impact… The annual monsoon rains reached India’s west coast this week. The Indian Meteorological Department (IMD) is forecasting that the rains – which typically continue until late September – will be around …
Remittance flows into India have been resilient in recent months and, with employment prospects for Indian migrants looking better than a year ago, they should continue to hold up well. That should provide some much-needed support for the economic …
9th June 2021
The Reserve Bank kept the repo rate on hold at a record low today and announced plans to ramp up government bond purchases on the secondary market, underlining its commitment to supporting the recovery. With the economy likely to take time getting back to …
4th June 2021
Lockdowns extended despite falling cases The drop in new virus cases in India is now broad based across almost all states, including large ones such as Karnataka, Maharashtra and West Bengal. (See Chart 1.) Even so, lockdowns were this week extended in …
India’s ferocious second wave of COVID infections is likely to have caused the economy to contract by about 5% over Q2 as a whole. The good news is that the outbreak is quickly subsiding and activity appears to have bottomed out. But the recovery is …
3rd June 2021
Recovery beyond the second virus wave will be slow India’s PMI readings for May adds to evidence elsewhere that the damage from the second virus wave has not been as severe as when the pandemic first struck last year. But with restrictions likely to be …
Manufacturing takes a hit, recovery ahead likely to be gradual The drop in India’s manufacturing PMI to a ten-month low in May suggests that activity has taken a hit from the second virus wave despite the sector being largely exempt from containment …
1st June 2021
Solid Q1 gives way to Q2 contraction The smaller than expected rise in Indian GDP in Q1 will be followed by a significant contraction in Q2 caused by the virus surge and tightening of containment measures. While the real-time activity data have bottomed …
31st May 2021
Recovery might be more gradual than last year New virus cases in India continue to drop sharply and have almost halved from their peak just a couple of weeks ago. The drop has coincided with an apparent bottoming out in some of the real-time activity …
28th May 2021
RBI likely to keep rates on hold next week as second virus wave subsides However, recovery may be more gradual than last year as states reopen with caution As such, policy will stay loose for a long while yet We agree with financial markets and the …
27th May 2021
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
New virus cases in India remain extremely high, but some solace can be taken from the fact that they have dropped rapidly over the past couple of weeks back to their level in mid-April. The share of tests returning positive has fallen too. Encouragingly, …
20th May 2021
