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Overview – Policy support has been stepped up in recent months and, with further easing set to follow, growth should gradually recover from the slowdown in Q1. In fact, the risk now is that policy loosening goes too far, raising the prospect of higher …
9th July 2019
The likely rise in headline inflation in June won’t prevent the MPC – now firmly under the control of doves following the surprise resignation of deputy governor Viral Acharya last month – from cutting rates further over the coming months. However, …
8th July 2019
The finance ministry attempted to demonstrate its commitment to fiscal prudence by lowering the FY19/20 deficit target in today’s union budget announcement. However, it is also aiming to boost economic growth with proposals to support SMEs and bolster the …
5th July 2019
Economic Survey sets out lofty ambition The annual Economic Survey released this week differed from previous iterations as it placed more emphasis on India’s long-term outlook. Most notably, the Survey states that it is now an objective of the government …
PMI readings not a barrier to policy loosening India’s manufacturing PMI reading remained consistent with decent output in June but it is unlikely be a barrier to further policy loosening. There is a high chance that a looser fiscal stance will be adopted …
1st July 2019
India’s current account deficit narrowed in Q1 and, while significant policy loosening could cause imports to pick up over the coming quarters, we think that oil prices will remain low. This should keep the import bill in check. Meanwhile, FDI inflows …
NPL ratio drops, but government’s work isn’t done The RBI reported this week that non-performing loans (NPLs) fell from 11.2% of total bank loans in March 2018 to 9.3% in March 2019. This is still extremely high by both historical standards and in …
28th June 2019
Given the recent economic slowdown, new Finance Minister Nirmala Sitharaman is likely to announce more accommodative tax and spending measures when she unveils the union budget for this fiscal year on 5 th July. Ms Sitharaman may choose to paper over the …
27th June 2019
The surprise resignation of RBI deputy governor Viral Acharya – one of the most hawkish members of the MPC – boosts the chances of further rate cuts in the near term. But it should once again raise questions over the RBI’s credibility and its …
25th June 2019
Ahead of the full budget for FY19/20 on 5th July, the early leaks have focused on potential changes to income taxes. By themselves, these won’t have a material impact on the fiscal position. But they would be indicative of a more accommodative fiscal …
21st June 2019
Amid signs of a recent slowdown in economic growth, the Reserve Bank of India cut interest rates at a third consecutive meeting in early June, taking the repo rate to its lowest since 2010. What’s more, the change in the official policy stance from …
20th June 2019
Cashless transactions in India have risen sharply over the past few years, and recent developments should further support the expansion of digital payments. But while there is a clear willingness from the authorities to boost cashless transactions, a …
19th June 2019
India’s monthly goods trade deficit widened a touch in May but given its very low exposure to an escalation in trade tensions between the US and China and the fact that oil prices are likely to stay low, we think the deficit will narrow over the coming …
17th June 2019
The wholesale price index is not the preferred measure of inflation for India’s policymakers but, even so, the drop in the headline rate in May will be used by the MPC as further justification of its shift to a more dovish policy stance. … Wholesale …
14th June 2019
The release this week of analysis by Arvind Subramanian questioning the quality of India’s GDP data has caused a stir. Questions about India’s data are not new. We argued that the new methodology used for GDP estimates after 2011 overstated the strength …
While India's headline inflation edged up in May and is likely to rise further, a sizeable fall in core inflation will be seen by policymakers at the RBI as vindication of their view that there is still room for further easing. … Consumer Prices (May) & …
12th June 2019
The withdrawal this week of the preferential trade status granted by the US to several Indian products will have limited economic impact given that exports of the affected goods were worth just 0.2% of GDP last year. Nevertheless, the move should give …
7th June 2019
Headline CPI inflation is likely to have remained below the RBI’s 4.0% target in May, which will be used by the central bank as vindication of its change to a more dovish policy stance in yesterday’s policy announcement. But with policy now being loosened …
The RBI cut interest rates at a third consecutive meeting today. Arguably more important, it laid the groundwork for continued loosening in the second half of the year. If soft surveys are correct in suggesting that there is limited slack in the economy, …
6th June 2019
The rise in India’s manufacturing PMI reading in May should help to ease some concerns over the state of local manufacturing following the weakness of the GDP data for Q1. Nevertheless, additional monetary stimulus still looks likely this week, and there …
3rd June 2019
The sharp drop in GDP growth in Q1 looks all the more perplexing given that various other indicators suggest a much milder slowdown last quarter. Nevertheless, the data will seal the deal on another rate cut next week, and increase the odds of fiscal …
31st May 2019
Nirmala Sitharaman, who has just been selected to replace Arun Jaitley as Finance Minister, faces a delicate balancing act in her new role. On the one hand, she will want to display fiscal rectitude. But on the other hand, she is likely to come under …
Prime Minister Modi was sworn in for his second term this week, and one of his first key tasks will be to select a new Finance Minister after Arun Jaitley announced that he would be stepping down from the post. Of the two apparent front-runners, the …
The MPC is likely to use the current low rate of headline inflation as justification for a third consecutive rate cut at the conclusion of its policy meeting on Thursday 6th June. But with a growing perception that the central bank is allowing its control …
30th May 2019
Election fever has gripped Indian financial markets this week, with equities and the rupee rallying as it became increasingly clear that Prime Minister Modi’s BJP would secure another resounding victory in the Lok Sabha. Markets continued to rally for …
24th May 2019
Prime Minister Modi’s BJP has secured another stunning victory in India’s general election. The key priority for Mr Modi in his second term should be to implement reforms to develop the manufacturing sector, which would boost potential GDP growth while …
The recent sharp drop in vehicle sales might signal that household consumption has slumped. But a significant part of the drop in sales can be explained by industry-specific factors including higher insurance costs and a drop in issuance of car loans amid …
22nd May 2019
Exit polls signal that Prime Minister Modi’s BJP and its coalition partners in the National Democratic Alliance have won India’s election. Admittedly, exit polls have been wrong in the past, not least in underestimating the strength of the BJP’s victory …
21st May 2019
Three years to the week that it was ratified, India’s bankruptcy code is now making a significant difference to the speed at which bankruptcy cases are resolved and the amount that creditors are able to recover. In turn, this is relaxing a constraint on …
17th May 2019
India’s monthly goods trade deficit widened in April but, given its very low exposure to a ratcheting up of trade tensions between the US and China and the fact that oil prices are likely to fall, we think the deficit will remain contained over the coming …
16th May 2019
The drop in wholesale price inflation in April will increase the clamour for another rate cut in June. But we think that underlying inflation will soon rise again, which underlines the risks associated with further monetary loosening. … Wholesale Prices …
14th May 2019
Further interest rate cuts in India look only a matter of time after headline inflation in April came in at a below-target 2.9% y/y. However, we continue to think that further monetary loosening is a policy mistake, as we expect underlying inflation to …
13th May 2019
Recent revelations have once again cast a spotlight on the accuracy of Indian data, but unfortunately, we doubt that the formation of an independent regulator, that some have called for, would lead to any great improvement. Meanwhile, we think that the …
10th May 2019
Headline consumer price inflation is likely to have risen in April due to another pick up in food inflation. However, it will have remained below the RBI’s 4.0% target. That will be enough to prompt the central bank to cut policy rates again, perhaps as …
7th May 2019
The surge in GST revenues over recent months won’t be enough to solve the government’s fiscal woes in the near term. However, it does suggest that compliance with the new tax system is improving, and a continued rise in revenues would boost prospects for …
3rd May 2019
India’s manufacturing PMI dropped again in April, but this is not a huge cause for concern. After all, the reading is still consistent with decent manufacturing output growth and we think that the prospects for local manufacturers remain fairly bright …
2nd May 2019
The extent of the monsoon rains has a significant impact on the livelihoods of millions of families in India given the high level of employment in agriculture. But at the macro level, the monsoon matters less to economic growth and inflation these days …
30th April 2019
High global oil prices have in the past contributed to worryingly-large current account deficits in India but prices would have to rise much higher than they have recently for that to return as a risk. Domestically, we doubt the government would cut …
26th April 2019
India’s mammoth general election that began earlier this month is now past the halfway stage. Votes have been cast in 302 out of the country’s 543 constituencies, with four days earmarked for further voting to take place before results are announced on …
24th April 2019
Remittances from abroad are an important source of external funding for India and were equivalent to almost 3% of GDP in 2018. That was more than FDI and portfolio inflows combined. Although there are some risks, we think that remittance inflows will …
23rd April 2019
Indian goods exports grew strongly in March, bucking the trend across most of Asia. But this strength is unlikely to last given a weakening of global demand and domestic capacity constraints. … Export strength unlikely to …
18th April 2019
India’s monthly goods trade deficit widened a touch in March but, with oil prices likely to fall, we think the deficit will remain contained over the coming months. In turn, that should help to keep the current account deficit at sustainable levels. … …
16th April 2019
Growth in India is likely to slow as policy tightens after the general election. Even so, it should still be the best performing major emerging economy in the coming years. … Slower growth after the …
15th April 2019
The rebound in March’s wholesale price inflation is unlikely to prevent the RBI from cutting rates at its next policy meeting in June. But with underlying inflation set to rise further, there is reason to question the dovish stance adopted by the central …
March’s rise in inflation probably won’t dissuade the RBI from cutting interest rates again at the next policy meeting. But with core inflation still elevated, the latest data underline the risks from the more dovish stance that the RBI has adopted under …
12th April 2019
The World Bank released its latest growth forecasts for India this week and, while we wouldn’t get too hung up on small differences in the numbers, the trajectory of growth that the Bank is forecasting seems too optimistic to us. The Bank also reported …
Headline CPI inflation will have remained low in March, even if, as we suspect, it rose slightly as food inflation continues to pick up. The RBI will almost certainly follow up its cumulative 50bp of rate cuts this year with further loosening, perhaps as …
8th April 2019
Indian equities scaled new highs this week, with the Sensex surpassing 39,000 for the first time on Tuesday. But we doubt that the recent rally will be sustained. From a valuations perspective, Indian equities are now looking extremely stretched. More …
5th April 2019
The RBI has delivered another pre-election gift to the government by lowering rates at a second successive meeting. A low level of headline inflation provided justification for the move. But with core inflation high, and a growing perception that the …
4th April 2019
The BJP appears on course to remain in power after India’s general election. But which party wins probably matters less for the economy and financial markets than whether the election delivers a stable government. A durable coalition or, less likely, …
2nd April 2019
