India growth: In need of a stimulus? – ANZ

ANZ analysts suggests that the Indian economy continues to show weak growth momentum, especially in demand-related indicators.

Key Quotes

“We expect the Q1 FY20 GDP data release this Friday (30 August) to be soft at 5.6% y/y, the slowest pace since March 2014. The nature of the slowdown is prompting calls for a direct stimulus, which the government has refrained from announcing so far. Some new measures were announced last week to prop up growth; however, we believe the current structural slowdown warrants more elaborate reforms.”

“Consumption activity continues to be the biggest drag on growth, with passenger vehicle sales recording the sharpest decline on record.”

“Manufacturing activity has not been supportive either. The absence of a sustained recovery in these indicators is particularly worrying.”

“The Reserve Bank of India’s (RBI) announcement of an excess reserves transfer of a record INR1.76trn to the government will help meet stretched budget calculations. We  reiterate  that using the buffer for causes other than the recapitalisation of public sector banks, meeting revenue shortfall or retiring public debt will prove inflationary. However, we will not be surprised if a stronger stimulus package is announced. Monetary policy easing of a cumulative 110bps so far this year has not helped lift demand as needed.”