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Industrial production likely to remain subdued

Key Economic Forecast

Real Economy:
 While the IIP is expected to remain muted owing to the low investment and weak external
demand, it is likely to edge on the positive zone supported by the festive season related
demand and the favourable base effect. D&B expects IIP to have grown by 0.0%-0.5% during
Price Scenario:
 Prices are likely to remain on the downside as long as the vegetable prices, which have been
the key commodity to drag down the overall CPI inflation in last two months, continue to fall and
demand remains benign. The upside risks to price still exists from the strengthening of the core
inflation primarily owing to the inching up of the inflation in the services segment and the fuel
group. D&B expects the CPI inflation to be in the range of 4.1%-4.3% and WPI inflation to be
in the range of 3.5% - 3.7% during Oct-16, respectively.
Money & Finance:
 Cut in repo rate by 25 basis point, moderation in CPI inflation rate and FII inflows in the debt
market will continue to keep yields across maturities lower. D&B expects 15-91 day T-Bill yield
to average at around 6.3%-6.5% and 10-year G-sec yield at around 7.0%-7.2% during Oct-16.
External Sector:
 While increase in the forex reserve and improvement in current account are likely to provide
some cushion to Indian rupee in the short term, strengthening of dollar, expectation of Fed
hiking the interest rate towards end of 2016, liquidity pressures given FCNR (B) redemption
and overvaluation of rupee will continue to put pressure on rupee going forward. D&B expects
the rupee to trade in the range of around 66.70-66.90 per US$ during Oct-16.
Detailed Commentary
Industrial production continues to remain weak and can be a restrain to the overall growth momentum in the current
fiscal. Going ahead, industrial production is likely to remain subdued amidst weak private sector investment and fragile
external sector demand. Further, business sentiment, as reflected in the Dun & Bradstreet Business Optimism Index,
remained a tad cautious during Q4 2016. Even as the CPI inflation have moderated significantly in last two months and
stood lowest in 13 months, the downward momentum in inflation is not yet broad based. The drop in inflation owing to a
handful of commodities does not point to a sustained slowdown in the price levels, especially when core inflation has
been strengthening” said Dr. Arun Singh Lead Economist Dun & Bradstreet India. “Demand needs to revive
strongly starting the festive month, especially from the rural segment, to support growth with government initiatives
acting as a catalyst to boost both investment and consumption demand” he added.


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