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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 …
14th February 2020
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
RBI set to keep rates on hold next week as amid food inflation surge Analyst consensus expects resumption of easing cycle later this year In stark contrast, we expect modest hikes towards the end of 2020 Policy rates look set to be kept on hold at the …
29th January 2020
FDI inflows to pick up despite risks UNCTAD reported this week that foreign direct investment (FDI) inflows to India rose to US$49bn (1.7% of GDP) in 2019 from US$42bn (1.5% of GDP) in 2018. This is a welcome development. FDI inflows are a more stable …
24th January 2020
A wave of anti-government protests and a weak economy have increased the likelihood of the finance ministry delivering additional fiscal stimulus in the FY20/21 union budget on Saturday 1 st February. That would provide a small boost to growth over the …
22nd January 2020
2019 was truly an annus horribilis for India’s economy but there are green shoots of a recovery in the data from the very end of the year. Industrial production growth jumped in November. (See Chart 1.) Meanwhile, growth in new passenger vehicle sales is …
20th January 2020
Tentative signs of a recovery Local media has been awash this week with headlines about “stagflation” – a disquieting mix of stagnant or slowing economic growth and rising inflation. On the face of it, these concerns are justified in India today. …
17th January 2020
The narrowing in India’s goods trade deficit in December is likely to reverse over the coming months. But we think that a low level of commodity imports will help to prevent the external shortfall from ballooning to unsustainable levels. India’s monthly …
16th January 2020
Headline WPI jumps to highest in seven months The RBI doesn’t put much weight on the wholesale price measure of inflation, but the fact that it accelerated to a seven-month high in December nevertheless supports our view that the rate-cutting cycle is now …
14th January 2020
Surge in headline inflation to five-year high brings easing cycle to an end The jump in headline CPI inflation to its highest since 2014 almost guarantees that the RBI will leave policy rates on hold at its next meeting in early February. And with core …
13th January 2020
Industrial downturn has probably run its course The sharper-than-expected turnaround in industrial production growth in November is a breath of fresh air for India’s economy and supports our view that the economic slowdown has probably bottomed out. We …
10th January 2020
Recent developments raise odds of fiscal loosening Developments this week have raised the likelihood of Finance Minister Nirmala Sitharaman announcing more fiscal stimulus in next month’s union budget for FY20/21. First, the protests initially triggered …
Overview – After a year to forget in 2019, a combination of policy loosening and more effective measures to deal with the malaise in the shadow banking sector will push economic growth in India back up to a healthier pace in 2020. And with core inflation …
9th January 2020
Another surge in headline CPI inflation in December – most likely to a five-year high – would almost certainly bring an end to the RBI’s easing cycle. And a rise in core inflation over the coming quarters should prompt the central bank to switch to …
The direct economic impact of the protests that began in opposition to the citizenship amendment bill is likely to be small. However, the protests have increased the chances of a larger fiscal stimulus in next month’s union budget, which would be positive …
6th January 2020
Surge in oil prices not yet a concern Global oil prices have surged today following news of a US airstrike that killed a top Iranian military leader. A further sharp increase could be economically-destabilising for India. After all, it is the world’s …
3rd January 2020
Jump in manufacturing PMI reduces chance of further rate cuts The jump in India’s manufacturing PMI in December suggests that the manufacturing sector has recovered from its weakness last year and supports our view that the recent economic slowdown has …
2nd January 2020
Vegetable price surge will keep RBI on sidelines RBI Governor Shaktikanta Das reiterated in a conference this week that, while the MPC unexpectedly kept rates on hold earlier this month, that didn’t necessarily signal the end of the loosening cycle. Mr …
20th December 2019
The citizen amendment bill – which aims to fast-track citizenship for non-Muslims from neighbouring Muslim-majority countries – has dominated the news over the past couple of weeks. This isn’t primarily an economic or financial issue, but there are …
18th December 2019
After a dreadful 2019, a combination of policy loosening and more decisive measures to deal with problems in the shadow banking sector will push economic growth in India back up to a healthier pace in 2020. And with core inflation set to rise, we think …
17th December 2019
Headline WPI inflation rebounds Headline wholesale price inflation rose for the first time in eight months in November. While not the preferred measure of inflation for India’s policymakers, this adds to the impression that the inflation backdrop is …
16th December 2019
India’s monthly goods trade deficit widened in November and we expect this to continue into 2020. Nevertheless, with imports of key commodities set to remain low, we think that the external shortfall will still remain small by historic standards. Data …
Bankruptcy code gets an upgrade The amendments to the Insolvency and Bankruptcy Code (IBC) that were approved in the Rajya Sabha (upper house of parliament) this week will provide much-needed support to India’s banking sector. One key change is that more …
13th December 2019
Surge in headline inflation could leave MPC on hold once more The further surge in headline inflation in November casts doubt on the possibility of further monetary easing. If the headline rate remains high above the central bank’s 4.0% target this month …
12th December 2019
The continued weakness of core inflation that we expect in November’s consumer price data will probably give the MPC scope to ease policy again in the near term. But the big picture is that the inflation backdrop is set to turn more difficult over the …
9th December 2019
RBI waiting for clarity on fiscal loosening The Reserve Bank’s unexpected decision to keep interest rates on hold yesterday was primarily driven by its concerns over the spike in headline inflation above the 4.0% target in October. (Our response to the …
6th December 2019
The Reserve Bank unexpectedly left interest rates unchanged for the first time this year, following five successive rate cuts. Nevertheless, the MPC has left the door open for further easing in the near term and a rate cut in February now looks likely. In …
5th December 2019
Rise in manufacturing PMI an early signal of a recovery We wouldn’t read too much into the rebound in India’s manufacturing PMI in November but, with policy stimulus already in the pipeline, we think that the prospects for local manufacturers will improve …
2nd December 2019
Weak economic growth guarantees a rate cut India’s economy slowed further in Q3 and, with a strong rebound in the near term looking unlikely, there is a rising chance that the rate cut that is almost certain next week will be followed by another in …
29th November 2019
BJP steps aside in Maharashtra Developments this week have brought an end to the political gridlock in Maharashtra. To recap, Prime Minister Modi’s BJP won the most votes in the recent state election there, but fell short of achieving an outright …
Further slowdown in growth in Q3 would seal the deal for another rate cut MPC will look past above-target inflation resulting from supply disruptions But in contrast with consensus, we expect modest hikes towards the end of 2020 We agree with financial …
28th November 2019
Phone tariff hikes no immediate concern for RBI India’s three largest telecoms firms (Vodafone, Bharti Airtel and Reliance Jio) revealed this week that they will simultaneously raise mobile phone tariff prices at the start of next month. This appears to …
22nd November 2019
Q3 GDP data due next week are likely to show a further slowdown in India’s economy, with the industrial sector the main source of weakness. However, some comfort can be taken from the fact that the services sector – which accounts for over 50% of the …
We couldn’t agree more with recent comments from RBI Governor Shaktikanta Das that much better governance is needed to improve the long-term health of the banking sector. The problem stems in large part from the outsized role of the state. Privatisation …
18th November 2019
The monthly goods trade deficit was virtually unchanged in October and we think that it will remain small over the coming quarters as low oil prices continue to keep a lid on imports. Data released on Friday evening show that India’s monthly goods trade …
Monthly data suggest another weak quarter in Q3 After a very weak first half of the year, the latest monthly data suggest that the economy hasn’t fared any better in the second half. Data released this week show that industrial production contracted 4.3% …
15th November 2019
Headline WPI inflation drops to 40-month low Wholesale price inflation is not the preferred measure of inflation for India’s policymakers, but the fact that the headline rate dropped to a 40-month low in October won’t go unnoticed. Another rate cut in …
14th November 2019
Inflation above-target for first time since mid-2018 The first above-target inflation reading since July last year should not push the Reserve Bank of India off its rate-cutting course. While the headline figure is being driven by a spike in food prices …
13th November 2019
Gloom in industry deepens The downturn in India’s industrial production deepened in September with the result that, on this measure, industry contracted slightly across Q3 as a whole. More policy easing is likely in order to turn the economy around. Data …
11th November 2019
Moody’s decision to cut its outlook on India’s sovereign rating is based in part on the government’s struggle to rein in the fiscal deficit. This is justifiable if a little behind the curve. But the ratings agency’s decision is also based on its …
8th November 2019
India drags its heels on trade agreement India this week opted out of the Regional Comprehensive Economic Partnership (RCEP), the Asia-wide trade deal that will be among the largest in the world when it finally becomes operational. The potential benefits …
Headline consumer price inflation is likely to have risen above the RBI’s 4.0% target for the first time in 15 months in October due to another jump in food inflation. This won’t dissuade the central bank from loosening policy further in the near term. …
7th November 2019
Finance Ministry easing alongside the RBI Only a few weeks after corporate taxes were cut, media reports this week suggest that the government is considering a reduction in the personal income tax rate, as well as an abolition of taxes on dividends paid …
1st November 2019
