Abatement of the 2nd wave and strong push for vaccination has uplifted the business optimism and growth prospects of the economy - Dun & Bradstreet
Real Economy: Industrial production is expected to have remained subdued in the month of June 2021 despite the easing of restrictions in various states as demand is yet to gather a strong foothold, much of which depends on the revival of the rural economy. Cautiousness also prevails. Shock to household finances and uncertainty about future pandemic waves is expected to have kept the industrial production subdued in June 2021. Going ahead, the industrial activity is expected to pick up along with the pace of vaccination and further easing of restrictions. Dun & Bradstreet expects the Index of Industrial Production (IIP) to have grown by 8% -9% during June 2021.
Price Scenario: Dun & Bradstreet expects inflation, both Wholesale Price Index (WPI) and Consumer Price Index (CPI) to ease, albeit slightly, in the month of July 2021 as demand remains weak and supply pressure wanes as compared to the previous two months. India being a net importer of major commodities, especially oil, the elevated international commodity prices along with high shipping costs pose significant upward pressure to the prices. The supply shocks and normalisation of prices following the demand-supply mismatch caused by the pandemic will keep inflation elevated and sticky in the near term. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 5.0% - 5.5% in July 2021 and expects Wholesale Price Inflation (WPI) to be around 11.5% - 11.7% in July 2021.
Money & Finance: Dun & Bradstreet expect yields across the curve in July 2021 to remain largely unchanged compared to last month. Expected additional borrowing by the government and high inflationary pressures will continue to lend an upward bias to the yields while buying of bonds by the Reserve Bank of India (RBI), under the Government Security Acquisition Programme (G-SAP 2.0) is expected to curb the rise. Dun & Bradstreet thus, expects the 15-91 day Treasury Bills yield to average at around 3.45% and 10-year G-Sec yield at around 6.2%-6.3 during July 2021.
External Sector: Dun & Bradstreet expects high imported commodity prices to keep the Indian rupee subdued against the US dollar. Concerns over the spread of the Delta variant of coronavirus is expected the keep investors cautious and return to safe havens is likely to strengthen US dollar, exerting downward pressures on rupee. Dun & Bradstreet expects the rupee to depreciate to 74.6 per US$ during July 2021.
Commentary from Global Chief Economist at Dun & Bradstreet, Dr. Arun Singh
“The abatement of the 2nd wave and the strong push for vaccination has uplifted the business sentiment and the growth prospects of the economy. Optimism level of businesses have improved in tandem with the gradual easing of restrictions and pickup in the economic activity. The pickup in the optimism level of businesses and continued confidence imparted by foreign investors augurs well for the economy. However, while the recovery is underway, it is underlined by risks. The rapid reopening of economic activities in India raises the prospect of renewed outbreaks. The high international commodity prices, elevated shipping costs and current inflationary situation in India is a cause of concern. If retail inflation follows wholesale prices, it will restrain real incomes and will be a drag on overall growth. Currently, we do not expect GDP to grow above 8% in FY22 and our outlook reflects the shock to household finances, some pass through of input price to retail inflation along with uncertainty about future pandemic waves.”. said Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet.