Concerns about an impending surge in non-performing loans have resurfaced over the past week. We flagged this risk a few months ago but, given the increasing likelihood of limited fiscal support, the damage to bank balance sheets could be more severe than we originally expected. Meanwhile, with a bountiful harvest now looking all but certain, food inflation should remain contained over the coming months. And we think that the collapse in domestic demand is likely to subdue underlying price pressures, which will pull headline inflation back towards the RBI’s 4% target soon.
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