This Week in Macro: RBI V Govt, Italy Budget, GBP Brexit Scenarios, Short MXN, Prefer M'sia > India

India: What You May Have Missed in the Industrial Production Numbers? And Why Is that Important?

India: Results Tomorrow, But Will Exit Polls for Assembly Elections Make the Markets More Nervous?

India - Political Competition Adds to Economic Risk

India: Weaker Coalition on the Horizon Threatens Reform

Welfare Tilt Hits Indian Fiscal Credibility

Senior Macro Strategist, TS Lombard

Martin Shenfield

Senior Macro Strategist

Research covering economic, politics & markets

TS Lombard

TS Lombard is the new research group formed through the merger of Lombard Street Research and Trusted Sources in August 2016. The merger has brought together two of the leading, and longest established, IRPs to create a unique offering combining best-in-breed macroeconomic forecasting and political and policy analysis. The group has a team of 25 analysts and strategists across offices in London, New York, Hong Kong, Beijing, Sao Paulo and New Delhi. 

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Macroeconomics

<p>Deputy Governor Viral Acharya’s speech last Friday on central bank independence brought the rift between the government and the RBI glaringly out in the open. As speculation ran rife on whether the government will invoke a provision that allows it to issue directions to the RBI on matters it considers necessary for public interest, the Finance Ministry today de-escalated tensions by saying it respects central bank autonomy. </p><ul>
<li>The RBI appears to have forced the government to back off, at least for now, with the Finance Ministry finally saying that it respects the RBI’s autonomy as it sought to calm jittery investor nerves. </li>
<li>But Governor Patel’s days as the RBI chief seem to be numbered; even if he stays on in his post for now, he will – like his predecessor Raghuram Rajan – not receive an extension to his term that ends in September 2019, especially if the current government is re-elected.</li>
<li>RBI worries over its independence are not isolated; other institutions have complained of erosion of autonomy while Finance Minister Arun Jaitley has questioned whether “the authority of the elected” is being weakened by “non-accountable institutions”. </li>
<li>A key bone of contention between the RBI and the government is the use of central bank reserves: the government wants the RBI to transfer its surplus reserves (that will help fund the fiscal deficit), but is facing stiff resistance. </li>
<li>This raises fresh concerns over the government’s ability to meet its budget targets amid rising macroeconomic headwinds in a politically crucial year.</li>
<li>Bank credit growth will suffer: the RBI will stand its ground on tighter lending norms while the government will not cede control, resulting in a standoff.</li>
</ul>

Deputy Governor Viral Acharya’s speech last Friday on central bank independence brought the rift between the government and the RBI glaringly out in the open. As speculation ran rife on whether the government will invoke a provision that allows it to issue directions to the RBI on matters it considers necessary for public interest, the Finance Ministry today de-escalated tensions by saying it respects central bank autonomy. 
The RBI appears to have forced the government to back off, at least for now, with the Finance Ministry finally saying that it respects the RBI’s autonomy as it sought to calm jittery investor nerves. 
But Governor Patel’s days as the RBI chief seem to be numbered; even if he stays on in his post for now, he will – like his predecessor Raghuram Rajan – not receive an extension to his term that ends in September 2019, especially if the current government is re-elected.
RBI worries over its independence are not isolated; other institutions have complained of erosion of autonomy while Finance Minister Arun Jaitley has questioned whether “the authority of the elected” is being weakened by “non-accountable institutions”. 
A key bone of contention between the RBI and the government is the use of central bank reserves: the government wants the RBI to transfer its surplus reserves (that will help fund the fiscal deficit), but is facing stiff resistance. 
This raises fresh concerns over the government’s ability to meet its budget targets amid rising macroeconomic headwinds in a politically crucial year.
Bank credit growth will suffer: the RBI will stand its ground on tighter lending norms while the government will not cede control, resulting in a standoff.


India: Costs of the RBI-Government Spat