Contact: Isha Mohanty

Baby steps towards economic recovery
Key Economic Forecast
Mumbai,  25 Jan 2016    

Real Economy: Growth in the Index of Industrial Production is expected to gain strength as the unfavourable base effect wanes. The government's efforts to debottleneck investment coupled with early signs of pick up in urban demand would also support production. D&B expects IIP to have grown by 4.0%-5.0% during Dec-15.

Price Scenario: WPI inflation is expected to come in to the positive zone from next month onwards given increase in food inflation. While the continued weakness in global commodity prices and slow pick up in domestic demand is likely to provide some cushion to CPI inflation, sharp increases in food prices could push CPI inflation even higher. D&B expects the WPI inflation to be in the range of 0.0%-0.5% and CPI inflation to be in the range of 5.8% - 6.0% during Jan-16.

Money & Finance: Yields in the debt market are likely to be elevated temporarily in view of the US Fed rate hike. Sharp rupee depreciation could also impact bonds negatively. However, domestic fundamentals coupled with rate cut by the RBI will push G-sec yields lower across the curve. D&B expects 15-91 day T-Bill yield to average at around 7.10%-7.30% and 10-year G-sec yield at around 8.10%-8.30% during Jan-16.

External Sector: Heightened geopolitical risks, financial market volatility coupled with outflows of foreign funds are likely to pressurize rupee on the downside in the coming months. D&B expects the rupee to depreciate to around 67.50-68.00 per US$ during Jan-16.

Detailed Commentary

“There have been some positive changes in momentum in certain segments within the economy. The easing of FDI norms, power and road sector reforms have laid foundation for long-term sustainable economic growth. A number of stalled projects have been de-bottlenecked and fast-tracked while hopes of a recovery in demand conditions have gathered strength particularly owing to Seventh Central Pay Commission payouts next fiscal. Yet, reforms have not come through at the expected pace and that remains the biggest hurdle in the recovery process. The macro-economic imbalances in the form of weak private investment activity and deteriorating trade performance remain an area of concern”, said Dr. Arun Singh Senior Economist Dun & Bradstreet India. “Going forward, it remains to be seen whether growing public investment can crowd in private investment on a sustained basis”, he added.