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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
The distribution of an effective COVID-19 vaccine in India will brighten the economic outlook next year, but India’s recovery will still be one of the weakest among major economies. One consequence is that government bond yields will remain exceptionally …
16th December 2020
India’s goods trade deficit widened again in November and is set to reach its pre-pandemic levels over the coming months, especially given recent positive developments on a COVID-19 vaccine. But we think the external risks will remain manageable. The …
Price pressures finally easing The drop in India’s consumer price inflation in November is likely to mark the start of a broader easing of price pressures. That would allow the RBI to keep monetary policy loose for some time to come. Headline CPI …
14th December 2020
Core inflation showing no signs of easing The rise in headline wholesale price inflation in November was driven by a further acceleration in core inflation but this could go into reverse soon, especially if a COVID-19 vaccine is successfully distributed …
Industrial recovery again surprises on the upside Industrial production rose by more than most had anticipated in October. Output is now growing as fast in y/y terms as it was before the pandemic hit. A near-term slowdown is a possibility but the outlook …
11th 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 …
The RBI kept the repo and reverse repo rates on hold today and made an explicit commitment to keep policy “accommodative” for the foreseeable future. Markets are too hawkish in expecting modest rate hikes within the next 12-18 months. The MPC’s unanimous …
4th 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 …
PMIs consistent with continued recovery in November India’s PMI readings edged down in November but still point to a continued economic recovery last month. This is likely to remain the case over the coming months as COVID-19 restrictions gradually get …
3rd December 2020
Manufacturing recovery still on the mend The drop in India’s manufacturing PMI in November comes as no surprise given that it hit a decade high in October. The big picture is that the reading is still consistent with a decent recovery in manufacturing …
1st December 2020
No change in policy this week given high inflation Markets are pricing in modest hikes within the next 12-18 months In contrast, we think rates will remain at current level or drop further We agree with financial markets and the consensus that India’s …
30th November 2020
The distribution of an effective COVID-19 vaccine in India would significantly improve the near-term economic outlook, and we have revised up our GDP forecasts for 2021 and 2022. But the economy will still suffer repercussions from the crisis over the …
Output still 9% below pre-virus level in Q3 The y/y slump in Indian GDP eased substantially in Q3 (Q2 of FY20/21), but output was still 9% below its pre-virus level last quarter. Looking ahead, encouraging news on vaccines has brightened the outlook, but …
27th November 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 …
India’s government has not put in any pre-orders for the Pfizer and Moderna vaccines that were first to report encouraging Phase 3 trial results. But, alongside the US, India has the largest order of any country for the Oxford/AstraZeneca vaccine. (See …
24th 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
The rebound in investment in India appears to have been stronger than anticipated over the past few months and we are revising up our estimates of Q3 GDP growth as a result. But the recovery faces several headwinds, meaning that investment will remain …
17th November 2020
Core inflation drives pick up in headline rate The rise in headline wholesale price inflation in October was largely the result of a jump in core inflation, which adds to the evidence from the latest CPI data that underlying price pressures are proving …
16th November 2020
India recorded its largest monthly goods trade deficit since the start of the pandemic in October as the export recovery came to an abrupt halt. Looking ahead, unlike much of Asia, India will not benefit much from strong global demand for electronics and …
Talks to establish the world’s biggest free-trade agreement, the Regional Comprehensive Economic Partnership (RCEP), are finally expected to conclude at the weekend. While a deal would provide a boost to sentiment, the direct economic benefits would be …
12th November 2020
Headline inflation jumps unexpectedly Headline consumer price inflation jumped in October further above the RBI’s 4% target, which removes the remote possibility of a rate cut at next month’s MPC meeting. But there are still reasons to think that headline …
Industrial recovery gaining some momentum Industrial production rose above its level a year ago for the first time in seven months in September, suggesting that the recovery in Q3 will have been better than we had been expecting. Adding to the encouraging …
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 …
The BJP’s relatively strong performance in the state election in Bihar suggests that goodwill for the ruling national party remains intact amid India’s largest recession in modern history. Bihar has also been one of the states to recently implement labour …
11th 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
Economic recovery gaining momentum The rise in the October PMIs suggests that the economy has been rebounding a little faster than we had thought. However, there are still plenty of headwinds to the recovery. Over recent months, the PMIs have been more …
4th November 2020
The Finance Ministry’s response to the pandemic has been even smaller than we initially thought. Announced stimulus measures were already meagre in size. It now appears that their impact has been partially offset by a pullback in other forms of government …
2nd November 2020
Manufacturing recovery gathers pace The rise in the manufacturing PMI to its highest reading in over a decade in October suggests that the recovery has been stronger than we had anticipated. But given the damage to corporate balance sheets and that …
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
Industrial recovery picks up a bit of pace The slump in the core infrastructure industries index eased in September, and this suggests that overall industrial output contracted by 8% in Q3. That’s a slight upside risk to our GDP forecasts. The core …
Out of all the banking sectors in major economies, India’s warrants the most concern. It came into the crisis in the worst shape, and the scale of damage to private balance sheets means it will be one of the hardest hit from rising defaults. Policymakers …
29th October 2020
The minutes of the Reserve Bank’s October policy meeting – in which policy was left unchanged – show that the MPC has turned more dovish on the inflation outlook and that it has reservations about the strength of the economic recovery. This reinforces our …
26th 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
New COVID-19 cases in India have dropped significantly over the past month. (See Chart 1.) Encouragingly, the share of tests returning positive has also dropped, indicating that the improvement in test results reflects a genuine drop in infections. That …
21st 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
WPI inflation rises by more than expected The rise in headline wholesale price inflation in September was sharper than expected but, with price pressures likely to ease in earnest over the coming months, we think further policy rate cuts are still on the …
14th October 2020
Headline rate has probably peaked Headline consumer price inflation rose by more than expected in September but there are signs that it may now have peaked. We think it will drop in earnest over the coming months which will open space for the RBI to …
12th October 2020
Industry still struggling to recover The slump in industrial production eased in August but output is still well below its pre-virus levels. And the fiscal stimulus package announced today will do little to boost demand. The recovery in industry, much …
It came as no surprise that the new MPC voted unanimously to keep the repo and reverse repo rates on hold today. But the relatively dovish tone of the statement, along with the dire growth outlook, mean we remain comfortable with our non-consensus view …
9th 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 …
After dragging its heels for several weeks, the government has finally appointed three new members to the RBI’s monetary policy committee (MPC). Not a great deal is known about their views on monetary policy but, given that the MPC tends to follow the …
6th October 2020
Signs of life in the recovery The rise in the September PMIs is a welcome sign that the economic recovery still has legs. But with new virus cases in India still high, the road to normality will almost certainly remain long and difficult. The PMI readings …
The narrowing in India’s goods trade deficit in September came on the back of a decent pick-up in external demand, while domestic demand showed encouraging signs of improvement too. But sustaining the pace of recovery in both will be difficult. India’s …
5th 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
Overview – The continued rapid spread of COVID-19 in India and the need for prolonged containment measures has plunged the economy into a double-digit contraction this year. A tepid fiscal response means the recovery will underwhelm too. The dire economic …
1st October 2020
Strength in manufacturing PMI won’t be sustained The jump in September’s manufacturing PMI reading to its highest in over eight years is a much-needed sign that the recovery still has some legs. But with India now a virus epicentre, containment measures …
Industrial recovery stutters The recent improvement in output in the core infrastructure industries came to an abrupt halt in August. With India now a virus epicentre, containment measures are likely to remain in place for a long time yet, which will …
30th September 2020
If ever there were a sign of how extraordinary economic developments have been this year, India recorded a stonking current account surplus in Q2. This is unlikely to last long, as oil prices will rebound, remittances drop and the goods trade deficit has …
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
