Key Economic Forecast

Real Economy: IIP for the month of Nov 16 is expected to be in the positive zone in Oct 16 largely owing to the base effect. Industrial production in the country continues to be plagued by weak investment activity, decelerating bank credit growth, weak external demand and lower capacity utilization rate. Besides the dent in consumption demand owing to demonetisation is also expected to impact production activity going forward. D&B expects IIP to have grown by 2.0%-3.0% during Nov-16.

Price Scenario: While demonetisation is expected to pull inflation down as cash constraint impacts the prices of commodities, the impact will the transitory. Upside risks to inflation persists with increase in global commodity and crude oil prices, strengthening of dollar, US fed rate hike and downward pressure on the rupee. D&B expects the CPI inflation to be in the range of 3.4%-3.6% and WPI inflation to be in the range of 3.2% – 3.4% during Dec-16, respectively.

Money & Finance: Yields across maturities during Dec 16 is expected to be lower or at the same level as in the month of Nov16 owing to moderation in inflation. Also, given rise in bank deposits, banks are parking their funds in government bonds. However, the hawkish stance of both the RBI and the Fed would pull down the bond prices although in the near term. D&B expects 15-91 day T-Bill yield to average at around 5.9%-6.0% and 10-year G-sec yield at around 6.3%-6.6% during Dec-16.

External Sector: Rupee is expected to remain under pressure in Dec 16. Uncertainty on impact of demonetisation, low productivity in parliament and ambiguity over the implementation of the GST on target date, uncertainly around global economy, OPEC decision to cut oil production along with strengthening of dollar will continue to exert downward pressure on rupee. D&B expects the rupee to trade in the range of around 67.70-67.90 per US$ during Dec-16.

Dun & Bradstreet’s Macro Economic Forecasts
Forecast Latest Period Previous Period
Inflation W.P.I 3.2% – 3.4% Dec-16 3.15% Nov-16 3.39% Oct-16
Inflation C.P.I (Combined) 3.4 %- 3.6% Dec-16 3.63% Nov-16 4.20% Oct-16
INR/US$ 67.7 – 67.9 Dec-16 67.64 Nov-16 66.75 Oct-16
I.I.P Growth 2% – 3% Nov-16 -1.87% Oct-16 0.67% Sep-16
15-91 day’s T-Bills 5.9% – 6.0% Dec-16 6.20% Nov-16 6.39% Oct-16
10 year G-Sec yield 6.3%-6.6% Dec-16 6.61% Nov-16 6.82% Oct-16
Bank Credit* 6.5% – 7.0% Dec-16 6.63% Nov-16 9.09% Oct-16
All figures are monthly averages *Refers to End number

Detailed Commentary

“The issues defying the domestic economy pre-demonetisation continues. Upside risk to inflationary pressures, volatility in the rupee and rise in global oil prices are likely to add concerns to already heightened uncertainty around recovery process of the Indian economy. Further, investment demand has contracted with no pick-up in hindsight and industrial activity remains in doldrums. Adding to that, the demand shock to the economy owing to demonetisation across sectors with high cash transactions and across industrial supply chains is likely to affect India’s growth momentum in the near term, as we expect the greater benefits of demonetisation to unfold in the medium to long term”

said Dr. Arun Singh, Lead Economist Dun & Bradstreet India. While the government has taken various initiatives to push for cash-less transaction, if the Reserve Bank of India is not able to supply adequate new banknotes in the immediate term, the impact would be prolonged. Further, the extremely low productivity in the winter session of the parliament and the ambiguity over the implementation of the GST on target date has created uncertainty amongst investors which might impact capital inflows going forward. This coupled with uncertainly around global economy,OPEC’s decision to cut oil production and hawkish stance by Fed would exert downward pressure on rupee, he added”

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February 2024