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India’s current account swung into a rare surplus in Q1. That probably won’t last for long as oil prices rebound, remittances drop and the trade deficit starts to widen again over the coming months. But the deficit is likely to remain very small. And with …
1st July 2020
Activity picking up but recovery will be protracted Despite remaining below 50, the rise in June’s manufacturing PMI reading suggests to us that activity has picked up further as containment measures have been scaled back. However, the lasting damage …
Industrial recovery will be slow and protracted The contraction in India’s core infrastructure industries index eased a little in May, suggesting that the slump in industry has bottomed out. But activity is still very weak and, given the damage that has …
30th June 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 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
After tightening dramatically in March following the outbreak of the coronavirus, our proprietary index shows that financial conditions in India have eased substantially over the past couple of months. (See Chart 1.) This is in large part due to the RBI’s …
24th June 2020
Recent developments have strengthened the ruling BJP’s hand in the Rajya Sabha (the upper house of parliament). This should help to ease the passage of economic reforms, provided that the BJP has the appetite to pursue them. Efforts over the past month to …
22nd 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
Worsening employment prospects for Indian migrants in the Gulf and the US mean that remittance inflows are likely to drop even as lockdowns are eased. While this won’t have severe ramifications for the balance of payments position, it will weigh on …
17th June 2020
The slight easing in the y/y contraction in goods exports and imports in May supports evidence from elsewhere that the worst has now passed for the economy. But both remain extremely weak, and a sharp improvement appears unlikely as external and domestic …
16th June 2020
Inflation not a constraint on policy action Wholesale price inflation data for May show a broad-based easing in price pressures. This reinforces our view that inflation shouldn’t be a barrier to further policy loosening, and we expect the RBI to further …
15th June 2020
Industrial output ground to a halt in April but high-frequency indicators including electricity consumption and air pollution levels suggest that activity has edged up since then. However, lasting damage from the lockdown and the threat of further sharp …
Lockdown severely curtails monthly data This Data Response was originally sent to clients as a Rapid Response on Friday 12 th June 2020. As a result of the Statistics Office being only partly operational due to India’s nationwide lockdown, the headline …
12th 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 …
Lockdowns are being eased in India, Pakistan and Bangladesh without any sign that coronavirus infections are being brought under control. Economic recoveries will face greater headwinds than in places where the virus has been contained as a result. But …
9th June 2020
The minutes of the Reserve Bank’s late May policy meeting – in which it trimmed both the repo and reverse repo rates – show that the MPC has become markedly more bearish on the outlook for economic growth amid the coronavirus containment hit. And with …
8th 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
Daily price data give a strong indication that food inflation dropped in May, most likely as supply disruptions eased a touch and agricultural activity was allowed to resume. With global oil prices low and domestic demand collapsing, there is little …
4th June 2020
Services past the worst, but recovery will be lacklustre Interpreting the PMI surveys in the current environment is tricky, but the small rise in May’s services PMI suggests to us that activity has edged up very slightly. Nevertheless, fears over …
3rd June 2020
Prime Minister Modi’s BJP has expedited structural reforms that normally face stiff political resistance, ostensibly as part of efforts to support recovery from the coronavirus crisis. These moves will do little to boost demand in the near term. But if …
2nd June 2020
Activity edges up but substantial recovery is a long way off The nature of the PMI surveys makes them tricky to interpret in the current environment, but we think May’s manufacturing reading indicates that activity in the sector edged up slightly last …
1st June 2020
Relative resilience won’t last According to the official GDP data, India’s economy held up rather well in Q1 as a whole given that a stringent lockdown was imposed in the second half of March. But the data are increasingly subject to significant revisions …
29th May 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 …
Amid the severe economic damage that the coronavirus and containment measures have caused, one potential positive is the greater prevalence of cashless payments as people make more purchases from home or transfer less physical cash to prevent the virus …
28th May 2020
The RBI has further stepped up its response to the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank has also left the door open for further loosening and, with the …
22nd May 2020
Resuming transport services a big risk Policymakers decided this week to further loosen containment measures by allowing some travel to resume. Restrictions on interstate passenger trains have been partially lifted, while domestic flights are due to …
Despite a stringent lockdown that has lasted nearly two months, new recorded cases of COVID-19 in India remain on a sharp upward trajectory and hit a record high yesterday. (See Chart 1.) The true number of cases is likely to be higher still given limited …
20th May 2020
The final details of the stimulus package reinforce our initial take that, while helpful in limiting downside risks to the economy, it will do little to boost demand in the near term. With the lockdown also being extended again (until the end of May), a …
18th May 2020
The 60% y/y contraction in goods exports and imports in April highlights the extreme weakness of external and domestic demand. This will probably mark the bottom as restrictions on activity are gradually pared back in India and the rest of the world, but …
Package will have limited impact on demand After weeks of inaction, the government has made a splash with its new support package by spreading the details across three separate announcements (and counting) this week. Table 1: Breakdown of COVID-19 Relief …
15th May 2020
Inflation not a constraint on policy action The partial release of the WPI inflation figures for April strongly suggest that the headline rate has dropped. This supports our view that the inflation outlook shouldn’t be a concern for policymakers, whose …
14th May 2020
The new fiscal stimulus will substantially push up India’s already-high public debt ratio. Policymakers may have to resort to unusual steps to keep borrowing costs in check, including further financial repression and a return to partially monetising the …
Prime Minister Modi’s 10% of GDP support package sounds impressive but the details just announced make clear that it has been bulked out for effect. Extra demand-boosting measures are worth less than 4% of GDP. The new support limits the downside risks …
13th May 2020
Inflation locked down, worse still to come for industry This Data Response was originally sent to clients as a Rapid Response on 12 th May 2020. As a result of the Statistics Office being only partly operational due to India’s nationwide lockdown, the …
Industrial output slumped in March and more timely evidence from the manufacturing PMI, electricity consumption and vehicle production strongly suggest that the sector has come to a near standstill in April and May. What’s more, with lasting damage …
12th May 2020
Loosened restrictions having very small impact While the nationwide lockdown has again been extended (this time until 17 th May), the latest phase includes a significant relaxation of containment measures in so-called “green zones” where there have been …
8th May 2020
Given growing worries about public health and the devastating economic impact of India’s lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow …
7th May 2020
Services faring far worse than manufacturing The extraordinary plunge in the services PMI highlights that services is faring far worse than the manufacturing sector in the current crisis. Looking ahead, the services sector is likely to suffer for longer. …
6th May 2020
India’s economy is all but certain to contract this year for the first time since 1979. And the government’s reluctance to respond to the coronavirus crisis as aggressively as those elsewhere means that the recovery will be slow too, as household and …
Manufacturing PMI plunges to record low The astounding plunge in India’s manufacturing PMI to a record low in April strongly indicates that the nationwide lockdown has caused activity to collapse. Looking ahead, with the shutdown now extended for another …
4th May 2020
Industrial activity to remain in the doldrums India’s core infrastructure industries index contracted sharply in March, suggesting that overall industrial output will have fallen by a similar magnitude. The lockdown only began towards the end of the …
30th April 2020
Labour market weakness, risk aversion heightened The immediate economic consequences of the virus and the measures to contain it are clear as day in the data, with most activity indicators having fallen off a cliff in March. However, there are now growing …
The RBI’s new special liquidity window should help ease redemption pressure on Indian mutual funds, which have come under strain since Franklin Templeton’s announcement on Thursday that it has been forced to close six of its debt schemes. But another …
27th April 2020
Second package is already too late After an underwhelming first attempt, a second fiscal stimulus package in response to the coronavirus and containment measures appears close following reports of a meeting between PM Modi and Finance Minister Nirmala …
24th April 2020
Measures to contain the spread of the coronavirus will increase strains among traditional banks, but the shadow banking sector – still reeling from a large-scale default 18 months ago – is likely to fare even worse. Shadow banks have tended to lend to …
22nd April 2020
The government’s reluctance to provide significant financial support for firms and households during lockdown means that non-performing loans are likely to surge. One legacy of the coronavirus in India is therefore likely to be an impaired banking sector …
21st April 2020
The RBI has taken further steps to help banks and borrowers weather the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank also left the door open for further loosening, …
17th April 2020
March data show extreme weakness… A number of data releases this week confirm that economic activity took an enormous hit in March amid the nationwide lockdown. Trade data show that both export and imports slumped by over 30% y/y . That was far worse than …
The collapse in both exports and imports in March highlights the extreme weakness of external and domestic demand. What’s more, the worst is yet to come as lockdowns to contain the spread of the coronavirus remain in place in both India and abroad. …
16th April 2020
Inflation not a concern for policymakers Although not the preferred measure for policymakers, the drop in the headline WPI rate in March reinforces our view that inflation is no concern at this stage. Instead, the priority now is for the central …
15th April 2020
