India Economy in a Snapshot Q3 2020 Report






Economic Outlook

The smoothed CEIC Leading Indicator was at 79.8 in July, showing a slight uptick after remaining at the same value for two consecutive months. In comparison, the actual indicator stood at 100.1 in July 2019. While the fall in the actual indicator was reflective of the lockdown, the sustained fall in the smoothed indicator was reflective of the overall slowdown in the economy that started prior to the pandemic. The turnaround in the smoothed indicator suggests recovery of the Indian economy. At the surface, it seems that the government stimulus and other reforms have provided a positive momentum, which has aided the revival of the various sectors. 

India’s continued inability to control the pandemic, amid weak fiscal support, is posing a significant challenge to put growth back on track in any sustainable manner. Worryingly, the scope for further fiscal stimulus is limited, as Moody’s and Fitch have already lowered India's credit rating and are maintaining a negative outlook for India. A further downgrade could adversely impact foreign investment flows to India, raise the cost of borrowing abroad for domestic firms and worsen the public finances due to the possibility of the government’s borrowing costs rising.

To make matters worse, the ability of the Reserve Bank of India (RBI, the central bank) to boost economic growth is limited given that there is a lack of sufficient demand for credit and a banking sector that is saddled with USD 123bn of bad debts.