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D&B Economy Observer: Economy forecast for the month of November 2021

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: Dun & Bradstreet expects Index of Industrial production (IIP) to have grown in double digits during September 2021, partly due to the favourable low base of the previous year. Improvement in demand aided by the festival season and support from export demand will aid the recovery in the industrial activity; while rural demand is expected to get stimulus from the resilience of the agricultural sector and record production of summer food grains. Dun & Bradstreet expects the Index of Industrial Production (IIP) to have grown by 10.5% -10.8% during September 2021.

Price Scenario:Dun & Bradstreet expects both headline inflation and wholesale inflation for the month of October 2021 to remain lower or at similar levels as witnessed last month. Inflation, nonetheless, is expected to increase going ahead given the surge in the global commodity prices and rebounding consumer demand. The Central Bank’s attempt to withdraw excess liquidity from the market is also expected to rein in inflationary pressures; however, if energy prices continue to remain elevated, the pass through of high energy prices into core inflation, which remains sticky and elevated, will pose a policy dilemma for the Central Bank. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 3.6% - 3.8% and Wholesale Price Inflation (WPI) to be around 10.6% - 10.8% in October 2021.

Money & Finance: With the pause in bonds purchases through G-SAP or Government Securities Acquisition Programme coupled with expansion of variable rate reverse repo (VRRR) auctions suggesting a move by the Central Bank towards liquidity normalisation, Dun & Bradstreet expects yields to increase, although gradually. The spiraling of global commodity prices, with domestic diesel and petrol prices hitting a record high, is fueling concerns about a wider fiscal deficit and rising inflation. Alongside, hike in interest rates by peer central banks and tightening of global liquidity will add to foreign investment outflow pressures in the debt market. On the other hand, India’s rapid economy recovery might ease off some of the upward pressure on yields.  Dun & Bradstreet thus expects the 15-91 day Treasury Bills yield to average at around 3.3 -3.4% and 10-year G-Sec yield at around 10.6%-10.8% during October 2021

External Sector: Dun & Bradstreet expects risks to the rupee to be skewed on the downside. Current account balance will continue to widen as the economic activity picks up and commodity prices surge to multiyear high. Along with that, the hawkish tilt from the Fed officials, rebounding of US yields and strengthening of dollar will exert downward pressure on rupee. While domestic factors like recovery in growth, foreign fund inflows and dollar reserves with the RBI are in favour of the rupee, external factors will cause rupee to depreciate strongly. Dun & Bradstreet expects the rupee to depreciate to 75.0 -75.2 per US$ during Oct 2021.

Commentary from Global Chief Economist at Dun & Bradstreet, Dr. Arun Singh

“India’s growth prospects are improving, so are both consumer and business confidence levels. The acceleration in the vaccination drive and easing of concerns of the 3rd wave are expected to add to the growth momentum. Reforms in the telecom sector and the clearances given to the Production Linked Incentive (PLI) scheme for different sectors should boost domestic manufacturing by attracting both domestic and international players. While the demand is expected to be robust, companies are facing supply side constraints, and this is expected to pose policy challenges for both the government and the Reserve Bank of India (RBI). Global energy prices are at a multiyear high and if this continues to remain elevated, there could be pass-through of price rise at the factory gate level and eventually into core inflation. Inflation, which has currently moderated, could thus turn unfavorable for the economic growth. Moreover, support from external demand could weaken from the current level if global supply-chain disruptions persist and the pace of recovery for the global economy moderates in Q4 2021” said Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet.

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