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Relative to budget estimates, the cumulative fiscal deficit in rupee terms is much smaller than normal for this time of year, due in large part to decent tax revenues. We think the Finance Ministry will use the tax windfall to rein in the overall budget …
1st November 2021
Industrial recovery falters Output from India’s core infrastructure industries dropped in September, providing further signs that the industrial recovery is faltering on the back of supply constraints. The core infrastructure industries index measures …
29th October 2021
Rising oil prices not yet a concern Global oil prices rallied further this week to multi-year highs, and sustained increases could be economically-destabilising for India. After all, it is one of the world’s largest net importers of oil, and high global …
The minutes of the Reserve Bank’s October policy meeting suggest greater divergence of opinion within the MPC, with two members calling for more definitive steps towards policy normalisation. But most members – including Governor Shaktikanta Das – are …
25th October 2021
Vaccine demand appears to be waning India administered its billionth COVID-19 vaccine dose this week, marking a significant milestone in the country’s rollout. But the aggregate figures mask a worrying recent slowdown in the vaccination drive. The number …
22nd October 2021
The latest activity data suggest that India's recovery has entered a slower phase, with global supply shortages starting to weigh on the economy too. In addition, India’s vaccination coverage remains low, leaving the economy exposed to the threat of …
20th October 2021
Industry hit by supply constraints Lacklustre industrial production data for August released this week were in part a reflection of a weak auto sector, which has been struggling to maintain output in the face of global semiconductor shortages. Vehicle …
15th October 2021
The sharp widening in India’s goods trade deficit in September was driven in part by an unusually large jump in oil imports that we think will prove a one-off. And with the economic recovery entering a slower phase, imports more generally are unlikely to …
Further falls in WPI inflation likely Headline WPI inflation dropped to a five-month low in September on the back of a fall in food and fuel inflation, both of which are likely to continue easing. And with the recent drop in consumer price inflation also …
14th October 2021
Drop in headline inflation still has further to run India’s consumer price inflation dropped further below the 6% ceiling of the RBI’s inflation target range in September, and we expect it to remain there for several more months. That’s one reason to …
12th October 2021
Overview – Following a rapid rebound from the second virus wave, India’s economy is beginning to lose some steam. And with vaccination coverage still low, downside risks remain significant. Under these circumstances, the RBI is likely to keep policy …
11th October 2021
The Reserve Bank kept the repo rate on hold at a record low today and stressed that its latest liquidity-withdrawal measures do not constitute policy tightening. Given our view that the recovery will only be back on more solid footing next year, we …
8th October 2021
Persistent shortages are a growing downside risk India is the latest major economy to be facing concerns about energy supply. Coal-fired power plants have on average enough stocks to last only four days, well below usual levels. (See Chart 1.) Chart 1: …
Recovery going strong, but downside risks remain The buoyant readings in India’s PMI surveys for September add weight to our view that economic output rose back to pre-virus levels in Q3. But the recovery will probably lose momentum over the coming …
5th October 2021
Manufacturing recovery likely to lose a bit of steam India’s manufacturing PMI rose in September, but that is likely to prove the high point as the rapid reopening rebound fades and local manufacturers start to feel the pinch from global supply shortages. …
1st October 2021
Improving tax revenue aiding the fiscal position Data released this week show that after five months of FY21/22 (April to August), the cumulative central fiscal deficit stood at 31% of the overall annual budget estimate. That is far smaller than normal …
Pace of industrial recovery has slowed Output from India’s core infrastructure industries only edged slightly higher in August, suggesting that the rapid reopening rebound has faded. The broader industrial recovery remains fragile against a backdrop of …
30th September 2021
RBI likely to keep rates on hold next week as inflation pressures eases Admittedly, some liquidity draining measures could be announced… …but these are likely to be marginal tweaks rather than signs of policy tightening Policy rates are highly likely to …
29th September 2021
Exports to resume, but local rollout takes priority Health Minister Mansukh Mandaviya this week announced that India will resume exporting COVID-19 vaccines from October. India stopped supplying vaccines to the rest of the world in April when it was …
24th September 2021
Speculation is building that India will be included in major global bond indices over the next year or so. If that happens, it would highlight the local bond market’s growing maturity and be cast as a coup by the government, for which bond index inclusion …
22nd September 2021
The Indian government’s aim to significantly ramp up infrastructure investment through its flagship National Infrastructure Pipeline (NIP) has suffered less disruption than might have been expected during the pandemic. That is a positive for long-term …
20th September 2021
Struggling telecoms get a financial lifeline Parliament this week approved several relief measures for India’s embattled telecoms sector. The most significant is a four-year moratorium on dues owed to the government. To operate in India, telecoms firms …
17th September 2021
Measures by the Reserve Bank to drain banking sector liquidity have caught attention over the past few days. But with liquidity still abundant, interbank rates at the very bottom of the rate corridor and financial conditions exceptionally loose, these …
14th September 2021
Rebound in WPI inflation likely to be temporary Following the weaker-than-expected consumer price inflation data for August released yesterday, headline wholesale price inflation data released today surprised to the upside. But it should resume dropping …
Drop in India’s inflation still has further to run The drop in India’s consumer price inflation in August was driven by a continued fall in food inflation. We expect a broader easing in price pressures to bring headline inflation further below the 6% …
13th September 2021
Rollout picks up speed but vaccination rates low India’s vaccine rollout has shifted into a higher gear over the past couple of weeks. Daily vaccinations have risen from about 5mn in mid-August to 8mn in September. Importantly, this pace of vaccination …
10th September 2021
This year’s monsoon has so far been weaker than usual. This won’t have as big an economic impact as it would have a couple of decades ago. But it will harm employment and energy production. Some comfort can be taken from the fact that food inflation is …
7th September 2021
Recovery going strong, but downside risks remain The sharp rises in India’s services and composite PMI readings in August support our view that the economy has staged a strong rebound in Q3. But downside risks remain significant as the threat of further …
3rd September 2021
Activity data indicate sharp recovery in Q3 Much of the coverage of this week’s Q2 GDP release highlighted the record y/y growth rate, but that was due to the slump last year rather than recent economic strength. We estimate that GDP dropped by 12% q/q in …
Manufacturing recovery starting to ease off The drop in India’s manufacturing PMI in August is probably just a sign of activity normalising following the strong pace of recovery in recent months. But the threat of further virus waves remains a significant …
1st September 2021
Q2 contraction to give way to strong Q3, but downside risks remain The record y/y rise in Indian GDP in Q2 (Q1 of FY21/22) was due entirely to base effects. We estimate that the economy shrank by 12% in q/q terms as India struggled with its Delta …
31st August 2021
Virus positivity rate in Kerala still rising Earlier this month, we flagged the sharp rise in new virus cases in Kerala as a key risk to economic recovery. On the face of it, there are encouraging signs that the outbreak is being brought under control. …
27th August 2021
Foreign portfolio outflows from Indian financial markets have been easing this month (see Chart 1), bucking the broader EM trend. This may have been driven in part by the improvement in the virus situation. Looking ahead, the growing likelihood of the US …
25th August 2021
The minutes of the Reserve Bank’s August policy meeting show the first signs of dissent as MPC member Jayanth Varma argued that a hike in the reverse repo rate and a change in policy stance would be prudent to show that the committee remains committed to …
23rd August 2021
Normalisation still some way off… We’ve argued for some time that the RBI is in no rush to join several of its emerging market peers in tightening monetary policy. That view was reinforced by the MPC’s relatively dovish communications at this month’s …
20th August 2021
Further falls in WPI inflation likely The drop in India’s headline wholesale price inflation in July came on the back of an easing in fuel and food inflation, both of which have further to run. And with headline CPI inflation having already peaked, we …
16th August 2021
The widening in India’s goods trade deficit in July was due in large part to the continued rebound in imports as containment measures were scaled back further. The trade deficit may widen a little further over the coming months but the big picture is that …
Efforts to boost supply won’t have big impact Concerns continue to build over a new virus wave in India. While daily infections at the national level remain low, they are still elevated in Kerala and are now also rising in a handful of other states. These …
13th August 2021
Drop in India’s inflation has further to run India’s consumer price inflation dropped below the 6% upper limit of the RBI’s target range in July, and we think further falls are likely. With the economy also still weak, there should be little doubt that …
12th August 2021
The Reserve Bank kept the repo rate on hold at a record low today and announced plans to ramp up government bond purchases on the secondary market, underlining its commitment to supporting the economic recovery. We don’t expect policy normalisation to …
6th August 2021
Rising infections in Kerala a big cause for concern Economic activity has been staging a very strong recovery since the second virus wave receded. But we’ve argued for some time that the rapid reopening would increase the risk of new outbreaks, …
Recovery takes hold, but new virus waves a key risk The rebound in India’s PMI surveys in July provides further evidence that the economy was quick to get back on its feet after the second virus wave. But the rapid reopening, combined with low vaccination …
4th August 2021
The postponement of the planned privatisation of two state-owned banks to next year has dealt an all-too-familiar blow to the Finance Ministry’s hopes of raising significant revenues from asset sales in FY21/22. Rather than relaxing the overall fiscal …
3rd August 2021
Manufacturing recovery underway The sharp rebound in India’s manufacturing PMI in July adds to evidence that the economy has been staging a strong recovery ever since the second virus wave receded. But with vaccine coverage still low, sustained …
2nd August 2021
The industrial recovery is underway India’s core infrastructure industries index rebounded in seasonally-adjusted m/m terms in June, suggesting that an industrial recovery is well underway. The core infrastructure industries index measures output in …
30th July 2021
A bankruptcy code to aid the COVID recovery The amendments to the Insolvency and Bankruptcy Code (IBC) that were approved in the Lok Sabha (lower house of parliament) this week would, if passed in the Rajya Sabha, provide much-needed support to India’s …
RBI likely to keep rates on hold next week as inflation pressure looks set to ease Central bank will underline its commitment to supporting the economic recovery Policy normalisation will happen only very gradually, and not until well into next year …
29th July 2021
Activity already close to pre-virus levels One key lesson from the past 18 months is that economies can rebound quickly once virus waves have subsided. Even with this mind, the pace at which activity in India has rebounded from its second wave has been …
23rd July 2021
Amid the ongoing debate over inflation in a post-pandemic world, one thing that does appear clear is that near-term price pressures in India have peaked. Consumer price inflation held steady in June at 6.3% y/y, while wholesale price inflation dropped for …
21st July 2021
Bad bank will help to improve balance sheets The contours of India’s long-awaited National Asset Resconstruction Company (NARCL) – or “bad bank” – have emerged over the past couple of weeks. In recent decades, bad banks have been used to clean up …
16th July 2021
