Growth prospects of India is severely undermined making the return to pre-pandemic levels onerous – Dun & Bradstreet
Real Economy: Dun & Bradstreet does not expect industrial activity to have grown strongly during the month of April 2021 as the 2nd wave started intensifying during the month curtailing business activity and impacting confidence levels. However, the printed data for Index of Industrial Production (IIP) during April 2021 is expected to be significantly higher as IIP had registered a severe fall last year which will impart a base effect to the estimated number. The spread and rise in the COVID-19 cases in April 2021 had forced states to impose restrictions and lockdowns impacting business continuity. The uncertainty of the nature and period of restrictions had caused various impediments to businesses and lowered both business and consumer confidence levels. Alongside, the curtailment of investment activity as government prioritizes managing the pandemic is likely to delay the revival in the industrial activity. Dun & Bradstreet thus expects the Index of Industrial Production (IIP) to have grown by more than 100% during April 2021.
Price Scenario: Disruptions in the supply chain and high global commodity prices are expected to generate inflationary pressures in the economy. The fall in rupee will also add to the import price pressures. Contributing to the high inflation would also be global crude oil prices which have witnessed an uptick in the recent past. The 2nd round of indirect impact of the elevated oil prices is also expected to drive prices in logistics and food articles amongst others. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 4.9% - 5.1% in May 2021 as the high base of last year would prevent a higher print of the headline inflation data. Dun & Bradstreet expects Wholesale Price Inflation (WPI) to be in the range of 12.8% - 13.0% in May 2021, partly due to the low base of last year.
Money & Finance: The introduction of the Government Security Acquisition Programme (GSAP) by the RBI is expected to keep the yields range bound, reduce volatility and impart a softening bias in G-sec yields. The RBI has bought Rs 250 bn worth of government securities in April 2021 and has announced to buy Rs 350 bn of government bonds in the 2nd tranche on May 20, 2021. Decline in US treasury yield and weak domestic growth prospects are also likely to exert downward pressures on yields. On the other hand, adverse global scenarios will impart an upward pressure. Dun & Bradstreet thus expects the 15-91 day Treasury Bills yield to average at around 3.32%-3.34% and 10-year G-Sec yield at around 6.22%-6.24% during May 2021.
External Sector: Depreciation pressures on rupee emanate from weak domestic economic conditions such as high inflation, low growth, increasing fiscal burden and the severe impact of the pandemic on the economy. However, rally in global and domestic stock markets and weak dollar is expected to lend an upward bias to rupee. Overall, Dun & Bradstreet expects the rupee to remain range bound at around 73.9-74.1 per US$ during May 2021.
Commentary from Global Chief Economist at Dun & Bradstreet, Dr. Arun Singh
“The downside risks to growth are intensifying as India battles with the 2nd wave, making the return to pre-pandemic levels onerous. Mounting healthcare expenses, weak labour market, price pressures, rising public and private debt, and spread of the infection to the rural areas have led to a pessimistic view of the economic recovery and downward revisions to growth projections. Even if there is no national lockdown, the localized restrictions and lockdowns are disrupting business continuity. The percentage of businesses to have been disrupted, according to Dun & Bradstreet COVID-19 business disruption tracker, was 47% as of 1st week of May 2021, with 52% of estimated sales revenues and 56% of employees of associated firms being impacted as a result. Owing to the intensifying nature of the pandemic and the spread to the rural areas, which was largely spared in 2020, we expect growth prospects to have deteriorated for FY22”. said Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet.