Need for fiscal stimulus has increased even as government finances remain strained
Real Economy: Index of industrial production is likely to remain subdued in the short to medium term. The slowdown in demand,lackluster investment and weak exports is expected to keep industrial activity muted. Moreover,optimism of India Inc remains clouded and cautiousness amongst investors have increased over the various graft and compliance related issues in the financial sector. D&B expects Index of Industrial Production (IIP) to have remain subdued by 0% - 1% during Nov-19.
Price Scenario: Negative manufacturing product and fuel inflation is expected to keep the WPI inflation lower and keep the divergence between the CPI and WPI inflation higher. Food inflation is expected to remain higher given the supply disruptions as crops have been damaged in many states,exerting upward pressure to the CPI inflation. D&B expects the CPI inflation to remain in the range of 6.3%-6.5% and WPI inflation to be in the range of 2.1% - 2.4% during Dec-19,respectively.
Money & Finance: Concerns over slowing growth and slippage of fiscal deficit target by a wider margin are likely to exert upward pressure on the yields in the bond market. On the other hand,the RBI’s intervention is expected to prevent the yields from inching higher. D&B expects 15-91-day T-Bill yield to average at around 4.75%-4.85% and 10-year G-sec yield at around 6.5%-6.6% during Dec-19.
External Sector: Strengthening of dollar,RBI’s intervention in the forex market,weak growth and depreciation bias witnessed in emerging markets currencies are likely to weigh down upon rupee. D&B expects the rupee to remain at around 71.0-71.2 per US$ during Dec-19.