By Dr. Arun Singh,
Chief Economist
Dun & Bradstreet India
26-Sep-19

Economy Observer

No quick turnaround of the growth momentum expected

Real Economy: Lackluster growth in the Index of Industrial Production (IIP) is expected to prevail during the year as the various manufacturing sectors are facing multiple challenges which will take time to get resolved. Fiscal stimulus planned by government and the policy rate cuts by the RBI along with other initiatives are likely to offer some respite to the corporates. However, a comprehensive/wide ranging reform package will be required to address the various issues at the sectoral level. D&B expects Index of Industrial Production (IIP) to have remain subdued and grown by 2.5%-3.0% during Jul-19.

Price Scenario: Lower economic activity along with subdued demand conditions and low commodity prices globally are likely to keep inflation benign. Two factors, lower agriculture production and flood in many districts in India have the potential to impart some inflationary pressures. D&B expects the CPI inflation to be lower than the previous month and remain in the range of 3.2%-3.4% and WPI inflation to be in the range of 1.1% - 1.3% during Aug-19, respectively.

Money & Finance: Lowering of policy rate by the RBI, low crude oil prices, foreign fund outflows in the debt market and low or negative yields globally will continue to keep the yields low. At the same time, increased likelihood of a fiscal stimulus package has raised concerns of additional borrowing by the government. D&B expects 15-91-day T-Bill yield to average at around 5.5%-5.7% and 10-year G-sec yield at around 6.4%-6.6% during Aug-19.

External Sector: Strengthening of dollar despite Fed rate cut amidst increase in risk averseness over concerns about US-China trade negotiations and fear of an Argentina credit default and FII outflows from Indian markets will continue to weigh upon the rupee. D&B expects the rupee to remain at around 71.0- 71.2 per US$ during Aug-19.

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