Latest news with #QuantEcoResearch
&w=3840&q=100)
Business Standard
a day ago
- Business
- Business Standard
8th pay commission payout may trigger rate hike cycle in FY27: Report
The 8th central pay commission (CPC) payouts are likely to tilt the growth-inflation balance somewhat unfavourably and trigger the Reserve Bank of India's (RBI's) rate hiking cycle in late FY27 or FY28, according to a report by private think tank QuantEco Research. The report noted that the 8th CPC is facing administrative delays, with final implementation expected at least a year later than initially anticipated. This implies that revised payouts will be disbursed with sizable arrears, impacting both growth and inflation. Payouts with arrears will weigh more heavily on core inflation as they fuel demand for goods and services over time and cause an immediate reset of housing rents. 'Payout with arrears, though offering some growth support via consumption, will also exert inflationary pressure — through a reset in the housing component and higher demand for other core components. This will tilt the growth-inflation balance unfavourably, prompting the RBI to embark on a rate hiking cycle in late FY27 or FY28,' the report said. Since February, the monetary policy committee (MPC) of the RBI has cut the repo rate by 100 basis points (bps). In its review meeting on August 6, it unanimously decided to keep the policy rate unchanged at 5.5 per cent, while maintaining a neutral stance and cutting the inflation outlook for the current financial year by 60 bps to 3.1 per cent. The report added that the delay in 8th CPC payouts will push the fiscal impetus to growth — earlier expected in FY26 — to FY27 and early FY28. 'Historically, lump-sum payouts with arrears propel urban discretionary consumption. This is a classic real-world application of Engel's law. Household spending tends to shift towards big-ticket goods such as cars, consumer electronics, and services such as air travel. At the same time, part of the rise in disposable incomes will also flow into savings — possibly bank deposits and equity investments,' the report said. The report further highlighted that the 8th CPC's fitment factor could be close to 2, compared with 2.57 under the 7th CPC. This would raise the minimum pay to Rs 35,000–37,000, from Rs 18,000 fixed under the 7th CPC. The overall cost to the exchequer for revising pay, allowances and pensions could range between Rs 2 trillion and Rs 2.5 trillion, more than double the 7th CPC's cost of Rs 1 trillion. 'Assuming a marginal propensity to consume (MPC) between 0.6 and 0.7, we estimate the impact of the 8th CPC to be 65–80 bps on annualised private final consumption expenditure (PFCE) growth and 40–50 bps on GDP growth. With CPC payouts adding at least 0.6 per cent to the fiscal deficit-to-GDP ratio, the government will have to create fiscal space for financing,' the report said. It added that financing these committed expenses under the 8th CPC presents a 'golden opportunity' to push through pending goods and services tax (GST) reforms, as the compensation cess is likely to be phased out by Q4 FY26.
Economic Times
2 days ago
- Business
- Economic Times
Growth to get lift, boost for demand after GST rationalisation, say economists
Synopsis Economists predict that the Goods and Services Tax (GST) rationalization will significantly boost domestic demand, providing crucial support to the Indian economy amidst challenges posed by US tariffs. The simplified tax structure, particularly benefiting essentials, is expected to increase disposable income for lower and middle-income consumers. ANI GST reform push has drawn favourable comments from economists. Domestic demand will get a boost after goods and services tax (GST) rationalisation, economists said, providing support to the economy that's seen likely taking a hit from the 50% duty levied on Indian imports by the US.'At a time where consumption demand has been uneven and felt pressure from high inflation and low nominal wage growth over the last couple of quarters, the proposed GST reforms are a positive, especially for essentials, aiding consumption by the lower and middle income class,' said Sakshi Gupta, principal economist at HDFC Bank. QuantEco Research economist Yuvika Singhal said, 'Any kind of reduction in taxes is positive for consumption as it leaves higher disposable income in the hands of consumers.' Prime Minister Narendra Modi had said in his Independence Day speech on Friday that GST reforms would provide relief to micro, small, and medium enterprises (MSMEs), local vendors and GST cuts on items will range from durables such as refrigerators and air conditioners to packaged foods and medical supplies. 'It's a much-needed development, and GST rationalisation is the need of the hour, apart from other reforms,' said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra). The Centre has proposed that India move to a simpler, two-slab structure from four currently--retaining the 5% and 18% rates and scrapping the 12% and 28% levies, ET reported earlier. 'With indirect taxes having a wider reach, GST reforms can deliver a stronger boost,' said Gaura Sengupta, chief economist at IDFC First Bank. 'Rural consumption is improving but not broad-based enough to offset weak urban demand, so a fiscal push was needed—and these reforms provide that.'Jasrai said that lower stabs and tax rates will give consumption demand a significant boost, especially amid the uncertainty over trade tariffs that are seen impacting external President Donald Trump has imposed a 50% tariff on India, including a 25% penalty for importing Russian oil. The International Monetary Fund (IMF) and World Bank have cut global growth forecasts amid the prevailing trade uncertainty. Even so, India's domestic strength will stand out.'Since domestic consumption makes up a larger share of the economy, India will remain resilient despite global headwinds,' said Singhal. An increase in spending activity will also lift gross domestic product (GDP). The boost to nominal GDP growth is estimated at 0.6 percentage point over 12 months using fiscal multipliers, said Bank's Gupta said the reform could boost demand for consumer durables if GST rates on items such as ACs and TVs are reduced. 'A more notable impact could also be seen for demand for two-wheelers and cars if the current GST rate of 28% is reduced to 18%,' she highlighted that fast-moving consumer goods (FMCG) companies will see a positive impact, depending on how and when the changes are implemented.
CNA
06-06-2025
- Business
- CNA
Reserve Bank of India lowers key interest rate by 50 basis points to 5.5% in surprise move
India's central bank has taken investors by surprise with a larger-than-expected slash to interest rates, while making it easier for banks to lend money. The Reserve Bank of India lowered its key repo rate by 50 basis points to 5.5 per cent. Most analysts had expected a 25-point cut. It is the third reduction in a row since February. Shubhada Rao, founder of QuantEco Research, speaks to CNA from Mumbai on the rationale behind the move.
Zawya
04-04-2025
- Business
- Zawya
US tariffs to hit India's GDP growth, prompt more rate cuts
MUMBAI - India's economic growth could slow by 20-40 basis points in the ongoing financial year due to the latest U.S. tariffs, which would prompt deeper interest rate cuts by the central bank, analysts said. U.S. President Donald Trump on Wednesday slapped a 26% reciprocal tariff on India, threatening the Reserve Bank of India's (RBI) estimate of 6.7% economic growth in 2025-26 and the government's economic survey forecast of 6.3%-6.8%. After the tariffs, Goldman Sachs lowered its growth estimate to 6.1% from 6.3%. Citi forecast a 40 bps drag on growth directly and indirectly, while Mumbai-based QuantEco Research estimated a 30 bps hit. Moreover, with inflation expected to average 4.2% this financial year, close to the RBI's target, the central bank cut interest rates for the first time in five years in February. It is expected to follow that with another 25 bps cut to 6.00% at the conclusion of its April 7-9 meeting, per a Reuters poll. However, while the poll showed that economists had expected just one more cut after that -- to a policy repo rate of 5.75% in August -- before a prolonged pause, the U.S. tariffs have prompted a rethink to those estimates. Goldman, Citi and QuantEco Research had also predicted just one to two more cuts this year, but now expect 75 bps of cuts this financial year, taking the policy rate to 5.5%, which would be the lowest since August 2022. "This would be an appropriate risk minimization strategy on the face of larger downside risks to growth compared to much lower upside risk to inflation," Citi's India chief economist Samiran Chakraborty said in a note late on Thursday. The growth-inflation dynamics "open up policy space for the MPC (monetary policy committee) to support growth, while remaining focussed on aligning inflation with the target," the MPC said in February. The Indian economy's growth is expected to have slowed to a four-year low of 6.5% in the financial year ended March 31, as urban demand weakened due to high inflation, tight liquidity and tougher RBI rules slowing loan growth across personal loans and credit cards. The central bank has, however, significantly eased liquidity conditions since new Governor Sanjay Malhotra took over in December. Plans to further tighten banking regulations have also been pushed back. Alongside this, the government announced a tax relief for all Indians earning up to 1.2 million rupees a year in its annual budget in February. The tax cuts and monetary policy easing will help domestic demand, said a government source who asked not to be identified. These should act as buffers for the economy, the source said, adding that India sees no need for an economy-wide stimulus at this stage but sector-specific stress could be addressed through targeted measures. "Rewriting of trade rules would prompt policymakers globally to take a hard look at reviving domestic consumption and demand," said Vivek Kumar, economist at QuantEco Research. For India, this could be through interest rate cuts and a weaker currency, he said.
Reuters
04-04-2025
- Business
- Reuters
US tariffs to hit India's GDP growth, prompt more rate cuts
MUMBAI, April 3 (Reuters) - India's economic growth could slow by 20-40 basis points in the ongoing financial year due to the latest U.S. tariffs, which would prompt deeper interest rate cuts by the central bank, analysts said. U.S. President Donald Trump on Wednesday slapped a 26% reciprocal tariff on India, threatening the Reserve Bank of India's (RBI) estimate of 6.7% economic growth in 2025-26 and the government's economic survey forecast of 6.3%-6.8%. After the tariffs, Goldman Sachs lowered its growth estimate to 6.1% from 6.3%. Citi forecast a 40 bps drag on growth directly and indirectly, while Mumbai-based QuantEco Research estimated a 30 bps hit. Moreover, with inflation expected to average 4.2% this financial year, close to the RBI's target, the central bank cut interest rates for the first time in five years in February. It is expected to follow that with another 25 bps cut to 6.00% at the conclusion of its April 7-9 meeting, per a Reuters poll. However, while the poll showed that economists had expected just one more cut after that -- to a policy repo rate of 5.75% in August -- before a prolonged pause, the U.S. tariffs have prompted a rethink to those estimates. Goldman, Citi and QuantEco Research had also predicted just one to two more cuts this year, but now expect 75 bps of cuts this financial year, taking the policy rate to 5.5%, which would be the lowest since August 2022. "This would be an appropriate risk minimization strategy on the face of larger downside risks to growth compared to much lower upside risk to inflation," Citi's India chief economist Samiran Chakraborty said in a note late on Thursday. The growth-inflation dynamics "open up policy space for the MPC (monetary policy committee) to support growth, while remaining focussed on aligning inflation with the target," the MPC said in February. The Indian economy's growth is expected to have slowed to a four-year low of 6.5% in the financial year ended March 31, as urban demand weakened due to high inflation, tight liquidity and tougher RBI rules slowing loan growth across personal loans and credit cards. The central bank has, however, significantly eased liquidity conditions since new Governor Sanjay Malhotra took over in December. Plans to further tighten banking regulations have also been pushed back. Alongside this, the government announced a tax relief for all Indians earning up to 1.2 million rupees a year in its annual budget in February. The tax cuts and monetary policy easing will help domestic demand, said a government source who asked not to be identified. These should act as buffers for the economy, the source said, adding that India sees no need for an economy-wide stimulus at this stage but sector-specific stress could be addressed through targeted measures. "Rewriting of trade rules would prompt policymakers globally to take a hard look at reviving domestic consumption and demand," said Vivek Kumar, economist at QuantEco Research. For India, this could be through interest rate cuts and a weaker currency, he said.
