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The report titled “India: Growth and inflation targeting review,” Radhika Rao, Economist at DBS Bank noted that the impact on India is felt through supply chain disruptions from China as well as regional players, who in turn are net importers from China.
“Temporary price increases are likely to be accompanied by production delays if the pain spills over into 2Q20 (April-June),” the report said adding that “the MPC is also likely to consider developments around COVID-19.”
The coronavirus outbreak has brought a large part of the world’s second-largest economy China to a standstill and its impact has been felt across industries.
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On economic growth, the report said, the Indian economy is in the midst of “bottoming out” – to reach a lowest or worst point before beginning to rise or improve.
“For 4Q19, lead data has been mixed, with our momentum indicator signalling a modest slowdown from the quarter before. We expect growth to stand at 4.4 per cent y-o-y followed by stabilisation in 1Q20 and a gradual pick-up, thereafter, helped also by base effects,” the report said.
Headline GDP growth has slowed from 8 per cent y-o-y in June 2018 to 5 per cent in June 2019 to 4.5 per cent in September 2019.
“Sub-par growth numbers are likely to raise pressure on policymakers to act,” the report said.
On the Reserve Bank of India reviewing the retail inflation targeting framework, the report said: “no sweeping changes are likely”.
“With the inflation-targeting framework being still relatively new, authorities are likely to keep the broad contours unchanged to allow the framework to stabilise, age and gain credibility,” the report noted.
RBI Governor Shaktikanta Das has said that the Reserve Bank of India is reviewing the retail inflation targeting framework behind monetary policy decision as well as its effectiveness and also plans to hold stakeholders consultations including with the government in June.