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The finance ministry faced a delicate balancing act in today’s budget announcement for FY17/18 as it aimed to boost demand while also demonstrating its commitment to fiscal prudence. Given this, it is no surprise that it has opted to slow the pace of …
1st February 2017
The rise in India’s manufacturing PMI in January is an early sign that the worst of the impact on activity from demonetisation may be over. Looking ahead, local manufacturers should gradually recover from demonetisation over the coming months, but the …
The finance ministry faces a delicate balancing act in the upcoming union budget for FY17/18, which will be unveiled on 1st February. On the one hand, it will be aiming to boost demand following demonetisation and in light of upcoming state elections. On …
26th January 2017
Upcoming state elections in India are likely to have an important bearing on economic policy at the local level. But perhaps more significant, the outcome of the state elections could be crucial in determining whether Prime Minister Modi’s BJP will …
23rd January 2017
Financial markets in India have made a relatively bright start to 2017. The rupee and bond yields have been stable, while equities have rallied so far in January. Looking ahead however, prospects are mixed. There are reasons to think that the currency and …
19th January 2017
The government’s demonetisation measures have led to a jump in card and digital transactions, but this has not been anywhere near large enough to offset the slowdown in cash spending. That said, it seems unlikely that cashless payments will retreat to …
17th January 2017
Indian wholesale price inflation edged up in y/y terms last month, but dropped in m/m terms as price discounting continued to take place following demonetisation. Nevertheless, further ahead, demonetisation could push up inflation by leading to supply …
16th January 2017
India’s monthly trade deficit narrowed significantly in December, and a number of factors should ensure that it remains in check over the coming months. This should keep India’s financial markets relatively secure in the event that global investor …
Consumer price inflation dropped again in December as price discounting continued following demonetisation. A rate cut can’t be ruled out in the near term but, over the longer term, demonetisation could stoke inflationary pressure. We continue to believe …
12th January 2017
India’s government has moved to strip the legal status of banknotes affected by demonetisation that are still in circulation. This would have the result of extinguishing some of the RBI’s liabilities and open up the possibility of the RBI making a one-off …
9th January 2017
Consumer price inflation is likely to have edged down in December as price discounting continued following demonetisation. However, further ahead, demonetisation could push inflation up by leading to supply disruptions and boosting liquidity in the …
6th January 2017
India’s December PMIs for both the manufacturing and services sectors suggest that the government’s demonetisation measures have had a significant, but not catastrophic, impact on economic activity. … PMIs suggest sizeable but not devastating …
4th January 2017
In our first Watch of 2017, we outline the prospects for India’s economy over the coming 12 months. The government’s demonetisation measures will lead to some weakness at the beginning of the year, but we expect growth to recover due to a rebound in …
3rd January 2017
2016 will be remembered as the year that Prime Minister Modi finally began to deliver on promises of much-needed economic reform. However, with a number of state elections due to take place over the next 12 months, the Modi government will face a more …
21st December 2016
Financial markets in India have taken last week’s decision by the US Fed to hike interest rates for the first time in a year in their stride. A bigger test might come if the Fed now tightens more aggressively than markets are anticipating in 2017 and …
20th December 2016
Trade data for November show that export values continued to recover last month. Looking ahead, export growth should remain positive, but the government’s target of nearly doubling export values from FY14/15 levels by FY20/21 looks too ambitious. he …
16th December 2016
Indian wholesale price inflation eased only slightly last month, supporting the message from yesterday’s CPI numbers that, while demonetisation has affected prices, there is little indication that disruption to the economy has been as dramatic as many …
14th December 2016
The narrowing in India’s current account deficit over a four-quarter sum in Q3, along with another rise in net FDI inflows, leaves the economy looking well-placed to cope in the event of a renewed upsurge in global risk aversion over the coming months. … …
The drop in CPI inflation in November can be attributed to the government’s demonetisation measures, but today’s data don’t indicate that disruption to the economy has been as dramatic as some reports have suggested. A rate cut can’t be ruled out in the …
13th December 2016
Indian industrial production data for October suggest that the sector was struggling even prior to the government’s demonetisation measures. … Industrial Production …
9th December 2016
We think that consumer price inflation dropped in November as the government’s demonetisation measures are likely to have led to some price discounting. However, demonetisation could boost inflation over the longer term if it leads to supply disruptions …
Having previously shown that it was willing to prioritise growth even at the risk of missing targets for inflation, the RBI’s decision today to keep interest rates on hold despite the downside risks created by demonetisation comes as a surprise. … RBI …
7th December 2016
The liquidity-draining measures that were eventually introduced by the Reserve Bank of India (RBI) to deal with the rush of cash entering the banking system after the demonetisation announcement have led to suggestions that the central bank may now …
2nd December 2016
The drop in India’s manufacturing PMI reading in November reverses the strength from October. Looking ahead, local manufacturers are likely to struggle amid the fallout from the demonetisation measures, while the sector also faces bigger structural …
1st December 2016
Today’s release of another set of strong GDP data requires two major caveats. The first is that the national accounts figures remain difficult to align with other indicators showing that activity is subdued by past standards. The second is that attention …
30th November 2016
Markets largely shrugged off the recent fall in the rupee to a record low against the US dollar, and were right to do so. With other EM currencies also weakening and inflation higher in India than elsewhere, the rupee still looks strong on broader …
India is often heralded for demonstrating a new path to middle income by focusing on the development of its services sector rather than on significant industrialisation. It is true that India’s services sector has grown more rapidly than in most other …
28th November 2016
The government’s shock demonetisation announcement earlier this month was its boldest measure yet to tackle corruption and formalise large parts of the shadow economy, but it is unlikely to be the last. … Anti-corruption drive has further to …
24th November 2016
The government’s surprise demonetisation announcement has led to a sharp rise in bank deposits over the past couple of weeks. The rush of liquidity in the system has led to a fall in interbank rates, while commercial banks have stepped up their bond …
21st November 2016
Despite many anecdotal reports of turmoil in the wake of last week’s surprise demonetisation, and undoubted hardship for many, the early evidence suggests that the economic impact of the move has been surprising mild. This in turn implies that the fall in …
18th November 2016
Although the monthly trade deficit widened a touch in October, a number of factors should keep it in check over the coming months. This should keep India’s financial markets relatively secure in the event that global investor sentiment turns against …
15th November 2016
The further fall in India’s consumer price inflation last month, along with the likely shock to demand from the government’s withdrawal of most bank notes, is likely to increase the clamour for further rate cuts. But if the RBI pulls the trigger and …
Indian wholesale price inflation edged down in October, but we expect it to resume accelerating over the coming months. The big picture is that there is still little room for further policy loosening. … Wholesale Prices …
Industrial production data for September suggest that, in contrast to the upbeat message from the strong GDP data, Indian industry continues to struggle. … Industrial Production …
11th November 2016
The announcement late yesterday that India’s two largest denominations of banknotes have ceased to be legal tender with immediate effect is likely to weigh on economic activity in the near term, with sectors such as retail that are dependent on cash …
9th November 2016
Consumer price inflation is likely to have edged up in October, as the recent sharp slowdown in food inflation appears to have bottomed out. But with the central bank focused on supporting growth, the pick-up we are expecting won’t be large enough to …
7th November 2016
India’s manufacturing PMI rose in October to its highest reading in almost two years, with sentiment being boosted by progress on the reform front and the RBI’s surprise rate cut last month. Nevertheless, local manufacturers are still facing structural …
Confirmation that a consensus has been reached on the various rates of the new Good and Services Tax (GST) marks another important step towards its implementation. A multi-tiered GST is far from perfect, but this should come as no surprise. It is …
4th November 2016
With more than half of the fiscal year over, the government’s aim of raising nearly INR600bn through asset sales of various state-owned companies looks unrealistic. Faced with a number of state elections next year, including in India’s largest state, …
2nd November 2016
Another sharp rise in the non-performing loan (NPL) ratio in Q2 and recent stark warnings from the IMF have refocussed attention on India’s ailing banking sector. The Reserve Bank of India (RBI) has stepped up efforts to tackle the NPL problem, for …
28th October 2016
Much of the focus both before and after the RBI’s decision to cut the repo rate by 25bp (to 6.25%) in early October has been on the sharp fall in headline inflation over the past couple of months. But this has been due in large part to a drop in food …
25th October 2016
Indian bonds have continued to rally this month after the Reserve Bank of India (RBI) delivered a surprise rate cut and left the door open for further loosening. However, we fear that policy could be loosened too far and stoke inflationary pressures. If …
20th October 2016
While the RBI is probably correct in suggesting that global neutral interest rates have fallen, this does not necessarily mean that India’s own neutral rate has fallen too, as the RBI suggested when it recently cut policy rates. As such, there is a risk …
19th October 2016
Trade data for September showed the strongest annual growth in export values in almost two years. Looking ahead, exports should continue to recover, but the government’s target of nearly doubling export values from FY14/15 levels by FY20/21 still looks …
17th October 2016
Indian wholesale price inflation edged down in September, but we expect it to resume accelerating over the coming months. The big picture is that there is still little room for further policy loosening. … Wholesale Prices …
14th October 2016
The fall in India’s consumer price inflation rate last month is likely to fuel talk of further rate cuts. However, if the RBI pulls the trigger and loosens policy again, it could ultimately backfire and stoke inflationary pressure, which would force the …
13th October 2016
Industrial production data for August suggest that, in contrast to the upbeat message from the strong GDP data, Indian industry is still in the doldrums. … Industrial Production …
11th October 2016
Consumer price inflation probably eased in September, which may bolster the more dovish position the RBI adopted at its policy meeting this week. But a looser monetary stance is likely to add to inflation pressures over coming months, which could forcethe …
6th October 2016
Today’s surprise rate cut by the Reserve Bank of India sends a signal that the new governor and MPC will prioritise growth even at the risk of missing targets for inflation. That’s a break from the more hawkish stance of the previous governor, Mr Rajan, …
4th October 2016
The drop in India's manufacturing PMI in September provides a reminder that, despite progress on the reform front, local industry still faces significant headwinds. … Manufacturing PMI …
3rd October 2016
