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D&B ECONOMY FORECAST The investment cycle needs to be revived to ensure sustained recovery


Key Economic Forecast

Real Economy: Index of Industrial Production (IIP) is expected to have clocked higher growth level even in Feb 2018, partly due to the low base effect. Further, IIP has gathered a strong footing over the three months through Feb 2018 and is likely to remain steady given improvement in demand. The thrust on infrastructure and construction activity in the Union Budget is likely to aid the demand scenario further. Nonetheless, a sustained rise in the capital goods segment and consumer durables segment is warranted to support the industrial activity. D&B expects Index of Industrial Production (IIP) to grow by 7.5%-7.7% during Feb-18.

Price Scenario: While the rate of CPI inflation has softened and fallen below 5% in Feb 2018 after clocking more than 5.0% in the previous two months, the rate of inflation is likely to remain elevated in Mar 2018. Both the core CPI and WPI have strengthened to around three-and-a-half years high. Moreover, the seasonal trend of higher food prices in summer might prevent further easing of food inflation than the current levels. D&B expects the CPI inflation to be in the range of 4.4%-4.6% and WPI inflation to be in the range of 2.6%-2.8% during Mar-18, respectively.

Money & Finance: Rise in the market-borrowing programme for FY18, reduction in surplus liquidity with improved credit pick up, muted demand for G-Secs from banks and FPIs is likely to keep yields elevated. Continued normalisation of the monetary policy by the central banks of advanced economies, may harden global bond yields in 2018 in turn exert pressure on domestic yields. D&B expects 15-91-day T-Bill yield to average at around 6.1%-6.2% and 10-year G-Sec yield at around 7.4%-7.6% during Mar-18.

External Sector: Rupee is expected to depreciate further in Mar 2018 given higher current account and fiscal deficit along with FII outflows. Moreover, dollar strength, the uncertainty posed by the recent by-poll results and potential market headwinds from heightened geopolitical tensions will keep rupee on the downside in Mar 2018 compared to Feb 2018. D&B expects the rupee to trade in the range of around 65.0-65.2 per US$ during Mar-18.


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“While India has once again regained the title of one of the fastest growing economies in the world with Q3 FY18 GDP growth data, the government faces a challenging scenario of managing the growth momentum. Handling the emerging frauds in the banking sector coupled with its likely ripple effects, dealing with the farmer’s agitation over loan waivers, muted GST collections, deteriorating conditions in the telecom and power sector and the protectionist policy imposed by US are likely to keep risk to growth elevated. The investment cycle in the economy needs to be revived in a sustained way. However, meeting the financing needs of both the private and the government will be constrained in the short term, in the light of the mounting losses and capital erosion in the public sector banks. Expecting a significant increase in government spending amidst the growing pressure of farm loan waivers, low GST collections and poor health of PSU banks seems challenging. Managing balance sheets of government and public sector banks while ensuring an employment led economic recovery are the two difficult tasks that the central government has to manage deftly” said Dr. Arun Singh, Lead Economist, Dun & Bradstreet India.