Union Budget is likely to focus on reviving rural economy
Key Economic Forecast – January 2018

Real Economy: IIP is expected to clock in a higher growth level in Dec 2017 as well, due to the low base effect at play. A sustained rise in the capital goods segment and a turnaround in the consumer durables segment is warranted for the industrial activity to revive from hereon. The government's thrust to revive the investment cycle and rise in optimism levels amongst businesses for increase in demand levels are expected to support industrial growth going ahead. D&B expects Index of Industrial Production (IIP) to grow by 5.5%-6.0% during Dec-17

Price Scenario: While the cumulative impact of the reduction in the GST rates on several retail goods and services will translate into lower prices for those products and get reflected in the CPI/WPI commodity basket, inflation rate is expected to scale higher in the near term largely owing to base effect and rising crude oil prices. The factors on the other hand which are building up inflationary pressures are the increases in Housing Rent Allowances (HRA) by the central & state government and the rise in the global crude oil prices besides firming up of household’s inflationary expectations. D&B expects the CPI inflation to be in the range of 5.5%-5.7% and WPI inflation to be in the range of 3.2% - 3.4% during Jan-18, respectively.

Money & Finance: Bond yields during the month of Jan 2018 are likely to remain largely unchanged compared to last month. Given that inflation rate will be driven largely by base effect, the policy rate is expected to remain unchanged in the upcoming policy review. This along with the reductions in additional borrowings announced by the government followed by expectations of special dividend from RBI and seasonally strong March quarter for direct tax collections are likely to keep the yields constrained. Bonds prices have been under pressure amidst rising crude oil prices and overall inflation, excess supply of debt and concerns of wider fiscal deficit. D&B expects 15-91 day T-Bill yield to average at around 6.0%-6.2% and 10-year G-sec yield at around 7.1%-7.3% during Jan-18.

External Sector: Rupee is expected to appreciate further in Jan 2018 as compared to Dec 2017 following foreign investments and rising forex reserves and weak dollar. Favourable interest rate differentials coupled with measures taken to improve ease of doing business, which includes 100% FDI in single brand retail will keep the value of rupee higher than the Dec 2017 levels. D&B expects the rupee to trade in the range of around 63.6-63.8 per US$ during Jan-18.

D&B's Economy Observer

A monthly economy outlook

The D&B Economy Observer is a macroeconomic newsletter which covers an in-depth analysis on important macroeconomic developments in the Indian economy and outlook on various variables such as GDP, inflation, Index of Industrial Production (IIP), G-sec yields, bank credit and exchange rate. The newsletter helps businesses to track the economic environment on an ongoing basis. This monthly newsletter includes: 1) Indian macroeconomic update 2) Forecasts for key macro-economic variables and 3) Special article on contemporary and emerging national issues

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