Filtered by Subscriptions: India Economics Use setting India Economics
Slump in output should be temporary The contraction in India’s industrial production in August is alarming but it should prove temporary as the effect of recent policy easing kicks in. Data just released show that industrial production growth turned …
11th October 2019
Slip in competitiveness ranking should reverse The World Economic Forum’s (WEF) Global Competitiveness Index for 2019 released this week showed that India’s ranking slipped 10 places to 68 th out of 141 countries. (See Chart 1.) Chart 1: India’s WEF …
Overview – India’s economy slowed sharply in the first half of the year but, with policy support being stepped up, growth should gradually recover. And despite the recent soft patch for the economy, we remain optimistic about India’s longer-term …
8th October 2019
Headline consumer price inflation is likely to have jumped in September on the back of a surge in onion prices. But that’ll hardly bring tears to the eyes of the RBI, as it is likely to have stayed below the 4.0% target. Another rate cut in December seems …
7th October 2019
The Reserve Bank reverted back to a 25bp rate cut today and has left the door open for further easing in the near term. But we are firmly non-consensus in expecting modest rate hikes by the end of next year. The MPC’s decision to cut the repo rate for …
4th October 2019
PMC Bank fraud highlights governance concerns India’s authorities have recently received plaudits for their efforts to clean up the banking sector. But news this week of a fraud scandal at the Punjab & Maharashtra Co-operative Bank (PMC Bank) is a stark …
PMI reading hasn’t yet reflected corporate tax cut boost The manufacturing PMI reading held steady in September, but this barely captured the impact of the recent large-scale corporate tax cut. Looser fiscal policy and the likelihood of further monetary …
1st October 2019
India’s current account deficit narrowed a touch in the four quarters to Q2 and looks unlikely to balloon any time soon as imports of key commodities remain in check. Meanwhile, FDI inflows edged up in Q2 and are likely to rise over the coming quarters as …
Equity market exuberance likely to fade… The large-scale fiscal stimulus announced last Friday by Finance Minister Nirmala Sitharaman has continued to reverberate in markets. While most Asian equity markets have dropped, the Sensex is up by 2.5% this …
27th September 2019
Another rate cut next week looks a done deal… …but MPC may opt for more traditional 25bp rate cut rather than 35bp In contrast to markets, we expect modest hikes next year The key question ahead of the MPC meeting that concludes on Friday 4 th October is …
26th September 2019
Fiscal loosening measures announced by Finance Minister Nirmala Sitharaman today are likely to provide a small boost to economic growth over the coming quarters, but significantly increase the chances of the ministry missing its budget deficit target this …
20th September 2019
Tax breaks, weaker rupee will have limited impact India’s goods trade deficit held steady at a low level in August. (See here .) However, export growth in value terms dropped to -6.0% y/y. Even focusing on the three-month average to smooth out monthly …
The latest activity data for India have been disappointing but, despite the economy’s recent soft patch, developments over the past month should boost optimism over long-run prospects. In late August, the government announced that it was easing …
19th September 2019
Since securing re-election this year, the Modi government has made it a formal aim to almost double the size of India’s economy to US$5trn by March 2025. In our view, the government is likely to fall short of this lofty ambition. Even so, we think that …
17th September 2019
Rate cut almost certain as WPI inflation remains weak Wholesale price inflation is not the preferred measure of inflation for India’s policymakers but even so, the continued weakness in the headline rate in August increases the likelihood of another rate …
16th September 2019
The goods trade deficit was virtually unchanged in August and, even if export growth stays weak, we think that the shortfall will remain small over the coming quarters. Data released on Friday evening show that India’s monthly goods trade deficit widened …
Car sales data may overstate consumption weakness Data released this week show that new passenger vehicle sales slumped by over 30% y/y in August. This was the biggest monthly decline since records began in 2003. (See Chart 1.) This has inevitably …
13th September 2019
Another rate cut likely with inflation holding steady Headline consumer price inflation held steady in August and remained comfortably below the RBI’s target of 4.0%. This is the last set of CPI data that will be released before the MPC next meets in …
12th September 2019
Gold imports to remain low Gold prices remain close to all-time highs in rupee terms, but the latest numbers on gold import volumes should assuage any concerns over the impact on the external position. Government officials announced this week that gold …
6th September 2019
Headline consumer price inflation is likely to have risen in August, due in large part to a renewed pick up in food inflation. But it will remain comfortably below the RBI’s 4.0% target. And given the weakness of GDP growth in Q2, further rate cuts are …
The government’s plan to merge several state-run banks is another step in the right direction towards fixing the beleaguered system. It follows a recent increase in the size of the recapitalisation package and strengthening of the bankruptcy code. But …
2nd September 2019
PMI readings paint healthier picture for manufacturing than GDP data Despite dropping in August, the recent manufacturing PMI readings paint a healthier picture of the sector than the Q2 GDP data released last week. That said, they won’t provide a hurdle …
More weakness in Q2 Another unexpectedly weak quarter of growth in India strengthens the case for further easing of fiscal and monetary policy. We expect both over the rest of this year. GDP growth slowed from 5.8% y/y in Q1 to 5.0% in Q2. This was the …
30th August 2019
RBI capital transfer will strengthen fiscal position… The RBI’s announcement this week that it would transfer a record dividend to the finance ministry in the current fiscal year on the recommendation of a panel study has a number of important …
Measures announced by the government yesterday to loosen restrictions on FDI are a welcome step and we think that further reforms aimed at attracting foreign investment are likely over the coming months. That bodes well for India’s external position and …
29th August 2019
Corporate tax cut indicative of looser fiscal stance Hot on the heels of Prime Minister Modi’s recent call for looser policy to support economic growth (see here ), a government panel this week recommended that the corporate tax rate for all companies be …
23rd August 2019
The minutes of the Reserve Bank’s August policy meeting suggest that the MPC’s larger-than-expected rate cut was intended in part to send a dovish signal rather than simply being a case of “front-loading” loosening. This supports our view that further …
22nd August 2019
The rupee has fallen by around 4% so far this month, underperforming all other major currencies in Asia. Growing risk aversion amongst investors in recent weeks has resulted in broad losses in EM currencies, but the rupee has been further impacted by …
21st August 2019
Further loosening still likely in near term In a wide-ranging interview with the Economic Times published this week, Prime Minister Modi commented on several economic issues. Plenty of emphasis was placed on the measures taken to revive economic growth …
16th August 2019
The merchandise trade deficit narrowed in July and we think that it will remain small over the coming months given India’s limited exposure to trade tensions between the US and China and the fact that oil prices are likely to stay around their current low …
15th August 2019
Rebound in WPI inflation still on the cards Wholesale price inflation is not the preferred measure of inflation for India’s policymakers but even so, the weakness in the headline rate in July increases the likelihood of another rate cut at the RBI’s next …
14th August 2019
More rate cuts on the way despite rise in core inflation Headline inflation held steady in July and remains comfortably below the central bank’s (RBI) 4.0% target, laying the foundations for at least one more interest rate cut later this year. But with …
13th August 2019
A better Q2 than Q1 Indian industrial production growth slowed in June, but the sector performed much better across Q2 compared to Q1. Looking ahead, recent policy moves should help to support local industry over the next couple of quarters. Data just …
9th August 2019
Escalation of crisis would have limited impact The Indian government this week revoked a long-standing constitutional provision that granted special autonomy to the state of Jammu & Kashmir. The measures will split the state into two separate “union …
8th August 2019
Headline inflation is likely to have remained below the RBI’s 4.0% target in July and will be used by the central bank as vindication of its decision to reduce interest rates for the fourth consecutive meeting yesterday. But with policy now being loosened …
The Reserve Bank delivered a (slightly) larger-than-expected rate cut today and has left the door open for further easing. If soft surveys are correct in suggesting that there is limited slack in the economy, further policy loosening could lead to higher …
7th August 2019
Investment growth collapsed to a near four-year low in Q1. While a spectacular rebound will remain elusive, investment should recover gradually over the coming quarters as election-related uncertainty clears and funding costs drop following the RBI’s cuts …
5th August 2019
Fiscal deficit target likely to be exceeded India’s fiscal deficit in Q1 of FY19/20 (April to June) provides little assurance about the government’s ability to meet the 3.3% target that it set in the union budget last month. Data released this week show …
2nd August 2019
Two-year manufacturing expansion won’t stop a rate cut India’s manufacturing PMI reading for July is consistent with decent output in the sector at the start of Q3. But this won’t be a barrier to further monetary easing, and we’ve pencilled in another …
1st August 2019
Inflation remains below target, while most hawkish MPC member has stepped down As such, another rate cut is likely next week But aggressive policy easing risks stoking inflation over longer term The MPC – now even more firmly under the control of doves …
31st July 2019
Gold prices have hit a record high in rupee terms in recent weeks, surpassing the previous peak in 2012 when India was on the brink of a balance of payments crisis. But a drop in underlying demand for gold, and lower prices for other major imports, …
30th July 2019
Hawk’s flight from MPC points to more easing Dr Viral Acharya stepped down this week from his position as one of the six members of the RBI’s MPC, one month after handing in his resignation. Dr Acharya was one of the most hawkish members of the MPC. …
26th July 2019
Measures announced during this month’s union budget to ease restrictions on foreign direct investment into India should help to assuage concerns that policymakers have taken a more insular view on investment policy. Our view remains that the Modi …
24th July 2019
Indian equities have dropped by over 3% so far in July (see Chart 1), even as most other Asian equities have held up reasonably well this month. The drop appears to have been triggered by proposals in this month’s union budget for FY19/20 which would …
23rd July 2019
Small amount of FX debt could bring benefits The finance ministry’s plans outlined in the FY19/20 union budget to issue a debut foreign-currency bond have drawn criticism from various quarters this week, ranging from esteemed former RBI governor Raghuram …
19th July 2019
The government’s hopes of hitting the record asset sales target that has been set in the budget for FY19/20 appear to be dependent on the smooth sale of a large stake in Air India. That seems unlikely. The government may choose to deploy some creative …
17th July 2019
India’s merchandise trade deficit narrowed for the first time in five months in June. Looking ahead, a limited exposure to a more protectionist US, as well as low oil prices, will help to keep the trade deficit contained over the coming months. Data …
16th July 2019
Falling WPI inflation raises likelihood of another rate cut The wholesale price index is not the preferred measure of inflation for India’s policymakers, but the continued decline in the headline rate in June will help the MPC to justify another rate cut …
15th July 2019
Inflation still well below target Consumer price inflation in India rose last month but the headline rate remains below the RBI’s target, while core inflation is no major concern. An August rate cut is almost certain. Headline inflation rose to 3.2% y/y …
12th July 2019
Banking sector still needs governance reform India’s authorities have received plaudits in recent years for their efforts to clean up the banking sector. (See here .) But news this week of a fraud scandal engulfing Punjab National Bank (PNB) – the second …
