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Industry holds up despite Omicron, but new headwinds emerge Indian industrial production held steady in m/m terms in January, supporting our view that the Omicron hit to the economy was small. But looking ahead, the surge in commodity prices as a result …
11th March 2022
Hit to GDP will come via net trade and investment We continue to write extensively across our services about the financial and economic implications of the war in Ukraine. All of our research on the topic can be found here . As a major net oil importer, …
The BJP’s performance in India’s state elections keeps it in a strong position nationally to pursue politically-difficult reforms. But it may instead conclude that its strong electoral showing was only possible because it backpedalled on contentious …
10th March 2022
Supply disruptions easing, but risks are high There are signs that supply disruptions in India have eased a touch. The PMIs for February released this week show that the backlog of works components have stabilised after rising sharply since the middle of …
4th March 2022
Omicron impact proves short-lived The rebound in India’s February PMIs suggests that activity is bouncing back as the Omicron outbreak subsides. And we think that there’s still significant scope for the economy to grow rapidly over the coming quarters. …
High commodity prices clouds outlook India’s manufacturing PMI rebounded in February as the Omicron outbreak subsided and containment measures were scaled back. But the threat of a continued rise in commodity prices as a result of the war in Ukraine is a …
2nd March 2022
Economy slowed at end of 2021 but strong growth likely this year Indian GDP data for Q4 (Q3 of FY21/22) show that economic growth was slowing before the Omicron wave hit. That outbreak will have caused activity to weaken further in the early stages of Q1. …
28th February 2022
Clients can find Capital Economics’ detailed coverage of the Russia-Ukraine crisis, including research on the potential impact on the global economy, energy markets, financial markets and Eastern Europe on our dedicated webpage here . For India, the key …
25th February 2022
Worries about India’s public debt trajectory have been growing since the Finance Ministry announced an accommodative Budget for FY22/23. But under reasonable assumptions for nominal GDP and interest rates, the Finance Ministry would not need to keep …
24th February 2022
Net portfolio outflows from Indian financial markets have picked up over recent weeks as the growing prospects of war between Ukraine and Russia and tighter global monetary policy have caused risk appetite to sour. Outflows from the equity market have …
23rd February 2022
LIC stake sale will boost public finances… Local media has been awash with commentary about the long-awaited initial public offering (IPO) of Life Insurance Corporation (LIC) after the state-owned behemoth this week submitted its draft prospectus. From a …
18th February 2022
Inflation likely to breach the RBI’s target soon Indian consumer price inflation reached the 6% ceiling of the RBI’s target range in January and, in contrast to the central bank, we think it will rise a bit further over the coming months. That will …
14th February 2022
The RBI’s policy announcement – in which rates were left unchanged – was the main event this week and our initial response can be found here . One key takeaway was that the Bank remains relaxed about the inflation outlook, even as inflation appears to be …
11th February 2022
The recent hawkish turn by many major central banks did not faze the RBI today, which continued to project a dovish tone while keeping policy settings unchanged. But inflation risks are building and we expect them to force the MPC’s hand before long. We …
10th February 2022
One of the more eye-catching elements of the Union Budget was the pledge that the RBI would introduce a Central Bank Digital Currency (CBDC) “starting 2022 and 23”. That would make the Reserve Bank a global front-runner. Many central banks are considering …
4th February 2022
We are forecasting a hike in the reverse repo rate next week as Omicron fears fade Repo rate hikes to follow before long as inflation rises above the RBI’s target Repo rate likely to rise by more than the consensus expects this year After months of …
3rd February 2022
Fallout from Omicron has been limited The drop in India’s PMIs in January suggest that activity weakened as the Omicron variant spread across the country. But the impact appears to be much less severe than that of the last two virus waves. And with new …
The upcoming election in Uttar Pradesh (UP) – India’s most populous state and one of its most politically important – is already having an impact on economic policy as contentious reforms have been put on the back burner over recent months. A poor …
2nd February 2022
Finance Minister Nirmala Sitharaman delivered a more growth-friendly Union Budget than most had expected today. But rather than unveiling measures to shore up support ahead of state elections, new spending plans are largely focused on ramping up capital …
1st February 2022
Finance Ministry likely to bank recent fiscal gains For watchers of India’s economy, next week is one of the most significant of the year as Finance Minister Nirmala Sitharaman delivers the Union Budget for FY22/23 on Tuesday. Unusually, the fiscal …
28th January 2022
The rapid spread of the Omicron variant in India has caused economic activity to weaken so far in 2022. But the damage has been much less severe than during the previous two outbreaks. (See Chart 1.) Perhaps unsurprisingly, airport traffic has been one of …
27th January 2022
Virus cases peaking in parts of India Daily COVID-19 cases in India are still rising sharply and are now around an eight-month high. But encouraging signs are emerging in the state-level data. New infections have stabilised in Maharashtra, and they have …
21st January 2022
Overview – India’s Omicron wave should only be a temporary setback to the economic recovery. As long as recurrent large waves of COVID are avoided, we think that economic growth will be faster this year than last. We also think that inflation will soon …
19th January 2022
Halfway to the peak? India’s third virus wave is still building rapidly. New COVID-19 cases have doubled over the past week, with the Omicron strain likely driving the surge. The good news is that the impact on healthcare remains manageable. For example, …
14th January 2022
Inflation likely to breach the RBI’s target in Q1 Indian consumer price inflation took a big step towards the 6% ceiling of the RBI’s target range in December. We think it will breach the ceiling soon and that the RBI will remove some policy support. …
12th January 2022
Korea, the Philippines and India are each holding elections this year that will play a role in setting fiscal and structural reform priorities, including the possible introduction of a universal basic income in Korea. And China looks set to tear up the …
10th January 2022
Economic impact of a third wave may be limited New daily COVID-19 cases in India have surged fifteen-fold in the last two weeks to their highest since June. The Omicron variant has been identified as the dominant strain in several parts of the country, …
7th January 2022
As long as recurrent large waves of COVID are avoided, we think that Indian GDP growth will accelerate this year. At the same time, inflation is likely to rise more sharply than generally expected. The result is that policy rates will be hiked by more …
5th January 2022
Recovery ongoing but surge in infections raises downside risks India’s PMIs remained buoyant in December, suggesting that activity continued picking up towards the end of 2021. We think the recovery will gain momentum this year but a recent sharp jump in …
Upside inflation risks are building in India. Damage to crops from bad weather has caused spikes in vegetable prices recently. And base effects aren’t helpful: food inflation will accelerate in year-on-year terms over the next few months even if prices …
20th December 2021
Some notable hits, but growth forecast a miss We will be publishing our Key Calls for 2022 in due course but, in our last Weekly of 2021, we take a look at what we got right and wrong this year. On balance, there were more hits than misses (the calls can …
17th December 2021
WPI inflation surges to record high Indian wholesale price inflation unexpectedly jumped to a record high in November. And given the mounting upside risks to the inflation outlook, there is a growing chance that the RBI brings forward the start of its …
14th December 2021
Inflation risks are building India’s consumer price inflation rose to a three-month in November and upside risks to the outlook are mounting. While we still think the RBI won’t raise policy rates until the middle of next year, a sharp rise in food price …
13th December 2021
Higher food prices could test RBI’s resolve The key event this week was the RBI’s policy meeting , during which rates were left on hold, as widely expected. But there is concern in some quarters that the central bank is being complacent about inflation. …
10th December 2021
The MPC voted to keep policy rates on hold today, opting only to introduce further small measures to withdraw liquidity from the banking sector. With the RBI still focusing primarily on supporting the fragile economic recovery, we continue to think that …
8th December 2021
Finance Ministry could respond to new virus wave India reported its first cases of the Omicron variant yesterday. Plenty of uncertainty remains about the new variant, but we outlined some of the key factors that could determine the extent of the economic …
3rd December 2021
Manufacturing recovery still fragile The jump in India’s manufacturing PMI in November suggests that the recovery is still ongoing, although it appears that global supply shortages have remained a drag. And with vaccination coverage in India still low, …
1st December 2021
MPC likely to stand pat next week as Omicron fears build Committee likely to announce further measures to drain bank liquidity… …laying the groundwork for policy rate hikes from mid-2022 Whereas many EM central banks have been hiking rates aggressively, …
Rapid rebound, but Omicron variant a key downside risk The 8.4% y/y rise in Indian GDP in Q3 (Q2 of FY21/22) is consistent with a rapid q/q rebound as virus restrictions were lifted and activity surged. But timelier data suggest that the recovery has …
30th November 2021
Winter parliament session set to disappoint The winter session of parliament begins on Monday with all indications point to it being a disappointment on the reform front. Fractious politics in the Rajya Sabha (upper house of parliament) – where PM Modi’s …
26th November 2021
The repeal this month of controversial reforms aimed at liberalising the agriculture sector is arguably the biggest political setback that the Modi government has faced since coming to power in 2014. And while the direct economic impact of abandoning …
24th November 2021
Investment facing long-term headwinds In a speech to the Confederation of Indian Industry (CII) this week, Finance Minister Nirmala Sitharaman made an impassioned plea for the private sector to play a greater role in the economic recovery by ramping up …
19th November 2021
The pandemic’s most significant economic legacy in India will be a heavily-damaged banking sector that is likely to constrain investment over the years ahead. This underpins our view that the economy could be 5% smaller over the long run than it would …
17th November 2021
WPI inflation will peak soon The jump in headline wholesale price inflation in October was due almost entirely to higher commodity prices, but we think they are now close to peaking. While the RBI will be wary that wholesale prices remain elevated, …
15th November 2021
Rise in inflation keeps it still well within RBI target range India’s consumer price inflation edged up in October but remained well below the 6% ceiling of the RBI’s inflation target range. And we expect it to stay there for several months yet, which …
12th November 2021
Coal inventories have bottomed out Coal-fired power plants in India now have on average enough stocks to last seven days. (See Chart 1.) That’s an encouraging improvement after the sharp plunge in inventories two months ago, and it should help to ease …
The pandemic has triggered a three-fold increase in the use of mobile payments in India. It is unclear whether there has been a corresponding broadening in the number of people using cashless payment. Demonetisation, five years ago this week, also …
11th November 2021
Hike in reverse repo rate not imminent Recent measures by the RBI to further drain liquidity from the banking system have been fuelling hawkish monetary policy expectations. Overnight index swap rates have jumped over the past week. And several analysts …
5th November 2021
Recovery going strong, but downside risks remain The strength in India’s PMI surveys for October suggests that economic activity continued to hold up well last month. But we still think that the recovery is set to enter a slower phase, and India’s low …
3rd November 2021
Manufacturing recovery still fragile The jump in India’s manufacturing PMI in October paints an upbeat picture of the health of manufacturing, but the recovery remains fragile against the backdrop of persistent global supply shortages and India’s low …
1st November 2021
