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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
In contrast to many other economies, the 20% y/y slump in India’s services sector in Q2 was less pronounced than that in industry, which collapsed by almost 40% y/y. But we doubt that the “outperformance” of the services sector will last. Containment …
24th September 2020
Elevated inflation will keep new-look MPC on the side-lines next week But dire economic outlook means it will resume loosening cycle soon Markets expect no change for prolonged period We agree with market and analyst expectations that the Reserve Bank’s …
23rd September 2020
Success in bringing the COVID-19 outbreak under control in Pakistan, Sri Lanka and to a lesser extent Bangladesh has enabled activity in these places to rebound much faster than in India, where new infections continue to surge. This supports our view that …
22nd 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
The widening in India’s goods trade deficit in August won’t put the external position at risk, but the underlying data suggest that the recovery in external and domestic demand is stuttering. India’s monthly goods trade deficit widened from $4.8bn in July …
16th September 2020
High core inflation to delay next rate cut Following the greater-than-expected rise in wholesale price inflation last month, it will come as some relief to policymakers that consumer price inflation held steady in August. That said, core inflation is …
14th September 2020
WPI inflation rises by more than expected Wholesale price inflation rose by more than most had expected in August, due mainly to a jump in the core component. A similarly sharp rise in core consumer price inflation last month – data will be released later …
Industrial recovery running out of steam The contraction in industrial output eased a little further in July but was still well below pre-virus levels. With India now on course to becoming the epicentre of the coronavirus, restrictions are likely to …
11th 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, …
The use of traditional monetary policy tools alongside financial repression will keep government borrowing costs in India in check over the coming years. That should help to ensure that only modest fiscal tightening will be needed to put the public debt …
9th 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
Still a very long way from normal The rise in the August PMIs pales in comparison with the falls during the lockdown and it is highly likely that output is still a very long way from pre-pandemic levels. Given the bleak economic outlook, we think the RBI …
3rd September 2020
Ongoing virus-related supply disruptions as well as one-off factors such as phone tariff hikes have kept inflation higher than we had anticipated over recent months. But with food inflation set to drop sharply and demand set to remain depressed, we are …
2nd September 2020
Manufacturing recovery will prove slow and fitful The rise in August’s manufacturing PMI is cold comfort when set against the extremely weak GDP data for Q2 released yesterday. And with new coronavirus cases showing no signs of abating, we think the …
1st September 2020
Almighty slump to be followed by weak recovery The 24% y/y slump in Indian GDP in Q2 (Q1 of FY20/21) is one of the largest peak-to-trough falls anywhere in the world. With the country still battling with its coronavirus outbreak, the rebound in India’s …
31st August 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
While some of the early epicentres of the coronavirus outbreak in India now appear to be getting infections under control, cases are rising quickly in several states that avoided an initial surge. This means more restrictions covering wider areas will …
27th 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
The minutes of the Reserve Bank’s August policy meeting show that the MPC – of which three members are now due to step down – has turned notably more hawkish on the inflation outlook. But there are reasons to think that inflation pressure will ease and, …
If the monthly activity data are anything to go by, GDP data for Q2 (Q1 of FY20/21) due at the end of the month will show that investment slumped by more than 30% y/y. (See Chart 1.) That will prove the bottom given the lifting of lockdown measures since …
19th August 2020
India’s monthly goods trade balance swung back into deficit in July, but the fact that it remains small means that there is little concern regarding external stability. Nevertheless, the underlying data continue to show that both external and domestic …
17th 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
Headline WPI inflation rises but remains low While the rise in headline wholesale price inflation was expected, underlying price pressures appear stickier than we had initially thought. We think these will still ease over the coming months, but the next …
High core inflation to delay next rate cut The unexpected jump in headline inflation last month was the result of core inflation being higher than we had anticipated. We suspect core inflation will eventually ease back due to the weakness of domestic …
13th August 2020
The economic slump and the government’s fiscal response are driving a sharp rise in public debt in India. There is no immediate threat given low-interest rates and the likelihood that nominal GDP growth will rebound from next year. But in coming years …
The recovery in India’s industrial sector has stalled. Given the substantial damage caused during the lockdown and the likelihood of a re-imposition of containment measures, the road to normality for the sector will be long and difficult. Data released …
12th 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
The only new step taken by the RBI today was the introduction of a new framework to help struggling borrowers manage their bank debt. The MPC voted unanimously to keep the repo and reverse repo rates on hold. But, with the growth outlook worsening amid …
6th August 2020
Economic recovery is beginning to stall The July PMI surveys have been a mixed bag but, taken together with evidence elsewhere, they suggest that the post-lockdown economic recovery is stalling. This adds to the case for further monetary easing, and we …
5th August 2020
Manufacturing recovery losing steam The small drop in July’s manufacturing PMI adds to signs elsewhere that the post-lockdown recovery is stalling. Looking ahead, the road back to normality for the manufacturing sector will be slow and fitful. India’s …
3rd August 2020
A difficult road ahead for Indian industry The contraction in India’s core infrastructure industries index eased slightly in June, but the weakness of industry will still have weighed heavily on GDP in Q2. What’s more, there are already signs that the …
31st July 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
Signs that recovery is stalling should prompt further easing Aware of inflation risks, a smaller 25bp policy rate cut is likely next week But persistent economic weakness means loosening cycle won’t end there The Reserve Bank of India (RBI) has been …
28th 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
After hitting an all-time low in April, the rupee has strengthened by 3% against the US dollar as risk appetite has returned to global financial markets. (See Chart 1.) But while we think risky assets generally – and most EM currencies – will continue to …
22nd 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
India’s monthly trade balance swung into its largest monthly surplus on record in June. But this is not something to celebrate since it is the result of continued weakness in domestic demand. Data released late yesterday show that the monthly goods trade …
16th July 2020
WPI inflation rebounds but remains low The wholesale price index is not the preferred measure of inflation for policymakers, but the broad-based rebound in the headline rate challenges our view that price pressures will ease this year. Nevertheless, given …
14th July 2020
India’s inflation receding after surge during lockdown Inflation in India appears to be easing after an initial surge when the lockdown first came into effect. We expect headline inflation to continue falling towards the RBI’s 4% target, which should …
13th July 2020
The slump in industrial production eased in May, confirming that the recovery in industry is now underway. But given the likelihood of a renewed tightening in containment measures and the substantial damage already caused during the lockdown, the road to …
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
Daily price data suggest that food inflation has eased over recent weeks and, with demand also likely to remain depressed, inflation does not appear to be a pressing concern. The focus of policymakers should therefore be to support the economy as much as …
Overview – India’s failure to contain the coronavirus and the government’s underwhelming policy response mean the economy will suffer its largest drop in annual output on record this year. In addition, the recovery is likely to be one of the weakest among …
7th July 2020
Economic recovery underway but set to remain lacklustre The rebound in June’s services and composite PMIs suggests the economy is now on the long road to normality. But the recovery will be slow and fitful . India’s services PMI rose from 12.6 in May to …
3rd 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 …
