Concerns over 2nd second wave, uncertainty over availability of vaccine and inflation pose downside risks to growth – Dun & Bradstreet Report
Real Economy: The Index of Industrial Production (IIP) is expected to grow modestly during October 2020, buoyed by the festival- related demand, but growth might taper off from November 2020 as base effect comes to play. Post-festival slowdown in demand and rising cases in several states pose concerns to the pace of recovery in industrial production. Dun & Bradstreet expects the IIP to have grown by 0.2% - 0.5% during October 2020.
Price Scenario: Dun & Bradstreet does not expect much respite from the inflationary pressures. Adverse weather conditions and festival-related demand have led to high food prices and only the supply of new crops will help abate the price pressures. , International food prices are surging as countries are stockpiling in anticipation of supply disruption and many countries witness a second wave of COVID-19. Non-food inflation is likely to be driven by gold prices, surging healthcare costs, uptick in demand and supply side disruption. These factors will continue to pose upward pressures to inflation over the next few months. Dun & Bradstreet expects the Consumer Price Inflation (CPI) to be in the range of 7.5% - 7.7% and Wholesale Price Inflation (WPI) to be in the range of 2.0% - 2.2% during November 2020.
Money & Finance: The Reserve Bank of India (RBI) has been taking various measures like Operation Twist to keep the yields low across the curve in order to support government borrowing and low interest rates for borrowers. Ample liquidity in the system and buying of long-term bonds by the RBI will keep yields within a range, despite rising inflation. Dun & Bradstreet expects 15-91-day Treasury-Bill yield to average at around 3.2%-3.3% and 10-year G-Sec yield at around 5.95%-6.00% during November 2020.
External Sector: Dun & Bradstreet forecast a clouded outlook for global economic recovery owing to the resurgence of COVID-19 cases, globally as well as in India, that has hit risk appetite and strengthened the dollar. This is likely to pose depreciation pressures on the rupee in the short term, even as domestic growth gets support from festive demand. Weakness in Asian currencies central bank dollar-buying interventions will limit gains in rupee. Dun & Bradstreet expects the rupee to remain at around 74.5-74.6 per US$ during November 2020.