By Dr. Arun Singh,
Chief Economist
Dun & Bradstreet India
28-Dec-20

Economy Observer

Continued government support will be crucial to sustain and propel growth momentum

Real Economy: Dun & Bradstreet expects growth in the Index of Industrial Production (IIP) in November 2020 to have moderated from the levels seen in October 2020, primarily due to two factors: the high base of the previous year and the dip in demand after the festive period. Dun & Bradstreet expects the IIP to have grown by 0.5% - 0.7% during November 2020.

Price Scenario: Inflationary pressures are likely to prevail in December 2020, as core inflation remains high even as food prices abate slightly. We are maintaining our expectation that high non-food inflation will persist, driven by gold prices, surging healthcare costs and supply-side disruption. Further inflationary pressure will stem from the increase in international crude oil prices - these have risen to the levels last seen in March 2020. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 6.6% - 6.7% and Wholesale Price Inflation (WPI) to be in the range of 1.8% - 1.9% during December 2020.

Money & Finance: Dun & Bradstreet expects bond yields (both short term and long term) to remain range-bound in December 2020, with a downward bias. Persistent sticky inflation, high borrowing levels, and a rebound in growth are likely to exert upward pressure on yields. On the other hand, the central bank’s decision to maintain an accommodative stance will anchor bond yields and help them to ease. Dun & Bradstreet expects the 15-to-91-day Treasury Bill yield to average around 2.8% - 2.9% and the 10-year G-Sec yield to be around 5.8% to 5.9% during December 2020.

External Sector: Dun & Bradstreet expects the rupee to appreciate during December 2020. Sustained buying momentum by foreign funds amid prospects of a faster economic recovery in India, record low global interest rates and easy monetary policy would help rupee to gain ground. The weakness of the US dollar is also likely to prop up the rupee. However, rising crude oil prices, along with a widening of the trade deficit, might cap some of the gains made by the rupee. Dun & Bradstreet expects the rupee to remain at around 73.5 to 73.7 per US$ during December 2020.

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