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PM Modi’s decision to extend the nationwide lockdown that was due to end today comes as no major surprise given that coronavirus cases in India continue to surge. With many households having no savings buffers and large parts of the economy remaining …
14th April 2020
Inflation no concern for policymakers Headline CPI inflation dropped to a four-month low in March and timely indicators suggest a further easing in price pressures so far in April. With inflation no concern, the priority for policymakers is to loosen …
13th April 2020
Timely indicators on electricity demand, vehicle production and air quality strongly suggest that industrial activity has fallen off a cliff since the nationwide lockdown began on 25 th March. These indicators will be worth watching closely when the …
9th April 2020
Containment measures not yet slowing virus spread Over two weeks have passed since India’s nationwide lockdown began. With restrictions initially scheduled to end next Tuesday, policymakers face a dilemma. On the one hand, despite India having more …
Given the concerns about public health and the impact of the national lockdown, the current rate of inflation should not constrain the actions of policymakers. Further ahead though, the likelihood that inflation remains low will allow policy to be kept …
8th April 2020
The Finance Ministry’s response to the coronavirus so far has been tepid and, unless it steps up, it risks turning the public health crisis into a humanitarian and banking crisis. We assume it will do a lot more. One issue is that further stimulus will …
7th April 2020
Far worse is yet to come The drop in the PMI readings for March suggests that the economy had already lost momentum even before the nationwide lockdown was imposed towards the end of the month. More timely indicators suggest that activity has now ground …
6th April 2020
Real-time indicators reveal slump The compilation of activity data for March and April will be severely curtailed as the Statistics Office is only partly operational amid the nationwide lockdown. That has placed extra importance on surveys and …
3rd April 2020
We have compressed this edition of the Outlook to focus it on the most timely indicators. Overview – Strict containment measures in response to the coronavirus outbreak in India will have severe economic repercussions. We think the economy will grow by …
2nd April 2020
Worst is yet to come India’s manufacturing PMI dropped to a four-month low in March and the reading has yet to capture the impact of the nationwide lockdown which began at the end of the month. April’s reading, and possibly beyond, will be far worse. …
The RBI has emphatically stepped up its response to the economic and financial market fallout from the coronavirus outbreak with another emergency announcement today. It has also left the door wide open for further monetary loosening. A similarly-bold …
27th March 2020
Fiscal loosening will need further ramping up Finance Minister Nirmala Sitharaman yesterday took her first shot at responding to the coronavirus outbreak – as well as measures to contain it – by announcing a fiscal package worth INR1.7trn (US$22bn, 0.7% …
RBI’s response to coronavirus has so far been limited But outbreak and containment measures should prompt aggressive loosening Repo, reverse repo and cash reserve ratios all likely to be trimmed by 50bp The RBI has so far taken only piecemeal steps in its …
26th March 2020
The measures to contain the spread of the coronavirus announced by PM Modi last night will be hard to fully implement but will still have severe economic repercussions. We now expect the economy to grow by just 1% this year, the weakest pace of annual …
25th March 2020
The number of confirmed coronavirus cases in India is now rising sharply and, in response, most states have implemented full or partial lockdowns. With many households likely to have very low savings buffers, the central government will urgently need to …
24th March 2020
Foreign portfolio flows out of India’s markets have surged over the past month to more than double the peak during the “Taper Tantrum” in 2013, which pushed India to the brink of a balance of payments crisis. Higher foreign exchange reserves and a smaller …
23rd March 2020
PM Modi, Governor Das take measured steps Both Prime Minister Modi and RBI Governor Das took cautious steps in their responses to the coronavirus outbreak this week. In his address to the nation last night, PM Modi announced a 14-hour self-curfew to take …
20th March 2020
Prime Minister Modi’s address this evening seemed intended mainly to raise awareness of the threat posed by the coronavirus in India. With case numbers still low, the government has taken few measures to contain the domestic spread. But the difficulty of …
19th March 2020
It has been a dreadful few weeks for India’s economy. This started with the release of GDP data showing that growth in Q4 slowed to its weakest pace since 2013. (See Chart 1.) And hopes of a near-term recovery have been well and truly snuffed out since …
The RBI announced some measures to boost bank liquidity in a hastily-arranged press conference today but disappointed the bond market by not lowering policy rates. With the coronavirus a growing threat to domestic activity, we think rates will be trimmed …
16th March 2020
Drop in WPI inflation increases rate cut chances amid virus threat The drop in wholesale price inflation in February is an added source of comfort for the RBI following the fall in CPI inflation last month. We think it will follow its global peers by …
India’s merchandise trade deficit narrowed to a one-year low in February and the collapse in oil prices since then should push the deficit even lower in the months ahead. As such, we now expect the current account to swing into surplus – a crucial …
Travel ban only the start of tougher measures The government’s announcement this week that it will suspend virtually all foreign visas for at least 30 days in a bid to contain the spread of the coronavirus won’t in itself have a major bearing on the …
13th March 2020
The plunge in oil prices over the past week means there’s a good chance that India records a rare current account surplus over the coming quarters. This should help to ensure that the rout in local financial markets – trading on the Sensex had to be …
Drop in headline inflation sets scene for renewed policy rate cuts February’s drop in consumer price inflation leaves the headline rate still well above target. But inflation is likely to fall further. In any case, with coronavirus risks mounting, the …
12th March 2020
The rising number of new coronavirus infections in Asia beyond China has largely been confined to Korea and Japan. But poor healthcare provision, the density of population and high levels of internal migration in the early stages of the monsoon season …
11th March 2020
Though the RBI’s takeover of Yes Bank is intended to reduce the direct threat posed by the failing bank to India’s financial stability, the measures that have been implemented could exacerbate systemic weakness in the banking system. This adds to the …
9th March 2020
Concerns over coronavirus are growing The rapid spread of the coronavirus looks increasingly likely to hamper domestic demand. Admittedly, at the time of writing the number of confirmed cases in India stands at 30, which is low in such a large population. …
6th March 2020
Headline consumer price inflation is likely to have dropped sharply in February, in large part due to a moderation in food inflation. This should further embolden the RBI to follow its global peers and cut interest rates over the coming weeks in response …
5th March 2020
The rapid global spread of the coronavirus has prompted us to lower our 2020 GDP growth forecast for India to 5.3%, from 5.7% previously. And there is now a high chance that the RBI follows the lead of other central banks by cutting interest rates in …
4th March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
Revisions to India’s GDP data suggest that the recent slowdown started earlier, and problems in the shadow banking sector have had a more acute impact on the economy, than previously thought. But arguably the most worrying aspect of the new data is that …
Local manufacturing relatively unscathed from coronavirus outbreak The drop in the manufacturing PMI in February was expected given its previous surge to an eight-year high in January. But the reading is still consistent with decent growth in …
Broad data revisions suggest economy weak for longer India’s economy slowed again in the fourth quarter of last year, confounding hopes for a small turnaround. But the bigger story in today’s data release is the substantial revision to the GDP data for …
28th February 2020
Gold losing its shine (in India at least) India is one of the world’s largest importers of gold. The recent surge in prices of the precious metal – driven by safe-haven flows amid concerns over the impact of the coronavirus – might therefore be regarded …
Temporary disruption from the outbreak of the coronavirus should have limited macroeconomic impact on Indian industry. After all, India has a negligible supply-chain exposure to China (see Chart 1), where factory shutdowns are now having knock-on effects …
24th February 2020
Low expectations for Trump visit Progress on trade negotiations (as well as the opening of the world’s largest cricket stadium in Ahmedabad) will be high on the agenda during US President Donald Trump’s visit to India next week. There are suggestions that …
21st February 2020
The Supreme Court’s ruling that Vodafone’s joint venture in India must pay up to US$7bn in retrospective levies and penalties has grabbed headlines over the past few days. In this Update , we answer three key questions about the current situation and its …
20th February 2020
A slump in investment has been the key factor behind the sharp economic slowdown over the past year. A spectacular rebound is not on the cards but investment should recover gradually over the coming quarters due to a combination of fiscal and monetary …
18th February 2020
India’s merchandise trade deficit widened to a seven-month high in January, but we think that a low level of commodity imports will help to prevent the external shortfall from ballooning to unsustainable levels over the coming months. India’s monthly …
17th February 2020
Underlying price pressures are building The RBI doesn’t put much weight on the wholesale price measure of inflation, but the pick-up in core WPI inflation supports our view that the room for further monetary easing has diminished. Headline WPI inflation …
14th February 2020
BJP policy shift unlikely after Delhi loss The Election Commission confirmed this week that the local Aam Aadmi Party (AAP) stormed to victory in the Delhi Union Territory election, winning almost 90% of the available seats. (See Chart 1.) Prime Minister …
Rise in core inflation likely to continue Inflation rose faster than most expected in January due to a jump in core inflation. With an economic recovery around the corner, underlying price pressures should strengthen further over the coming quarters. That …
12th February 2020
Headline consumer price inflation is likely to have edged up in January, in large part due to a continued increase in food inflation. Further ahead, food inflation is likely to ease, but we expect core inflation to rise over the coming quarters as the …
7th February 2020
Finance ministry steps up These have been a busy few days for India’s policymakers. The finance ministry on Saturday confirmed in the Union Budget that it had changed tack and was aiming for much looser fiscal policy than it had been. (See here .) That …
While keeping rates on hold today, the RBI has kept the door open for further policy loosening over the coming months. But we doubt this will materialise, and expect the central bank to shift to tightening mode before the end of the year . All six member …
6th February 2020
The government’s hopes of hitting the record asset sales target in the budget for FY20/21 hinge on the smooth sale of large stakes in one of India’s worst-performing banks and a politically-important insurer. Neither is likely. The government may choose …
5th February 2020
Manufacturing PMI has probably peaked India’s manufacturing PMI surged in January to an eight-year high and defied the trend across the rest of Asia. Though the reading may fall back as fears over the coronavirus dents sentiment, the big picture is that …
3rd February 2020
The finance ministry set aside notions of near term fiscal consolidation by announcing additional stimulus in the FY20/21 union budget. That should help to support economic growth over the coming quarters, albeit at the cost of putting upward pressure on …
Sale of Air India a prop to the budget Ahead of tomorrow’s Union Budget, the government this week invited bids from potential investors in Air India. (Clients can read a preview of the Union Budget here .) Its sale would provide some much-needed revenues …
31st January 2020
