INFLATION, ALONG WITH EXTERNAL HEADWINDS, POSES CHALLENGES TO INDIA'S GROWTH PROSPECTS - DUN & BRADSTREET

MUMBAI, India, Dec. 6, 2024 /PRNewswire/ -- Dun & Bradstreet, a global leader in business decisioning data and analytics, has released its Economy Observer report for November 2024. Economy Observer is a monthly report that shares an in-depth analysis on key macroeconomic developments in India and provides a monthly forecast of key economic indicators, providing insight into the expected direction of the Indian economy for the upcoming month. 

Key economic forecast:

Real Economy:

India's Index of Industrial Production (IIP) grew by 3.1% year-over-year in September 2024, recovering from a 0.1% contraction in August, driven primarily by a 3.9% expansion in the manufacturing sector due to rising demand and economic recovery. However, the outlook remains fragile as mining and electricity registered sluggish growth of just 0.2% and 0.5%, hampered by aging infrastructure, volatile commodity prices, rising fuel costs, and ongoing supply chain disruptions. Intermediate goods grew by 4.2%, indicating strong demand for manufacturing inputs, while consumer durables rose by 6.5%, reflecting robust demand in urban and rural markets. Despite these gains, Dun & Bradstreet expects IIP to slow down to 2.8% in October, citing weakened output in key sectors, persistent supply chain issues, and rising input costs, suggesting the recent growth may be short-lived.

Price Scenario: Consumer price inflation (CPI) rose to 6.2% in October 2024, up from 5.5% in September, while wholesale price inflation (WPI) increased to 2.3% from 1.8%. The main driver was a 13.5% rise in food prices, continuing the trend from September. The primary articles index, including food and essentials, grew 8.1%. Food and beverages, which account for 45.9% of CPI, remains a key inflation driver due to supply-side issues and high demand for cereals, oils, and vegetables. Global energy price hikes, especially of crude oil, have further contributed to inflation. Dun & Bradstreet forecasts WPI inflation to moderate to 2.5% in November 2024, but CPI is expected to remain high at 6.5%, well above the Reserve Bank of India's (RBI) targets. Uncertainty around energy costs persists, though falling oil and gas prices amid geopolitical tensions could help ease some inflationary pressures.

Money & Finance: Investor confidence remains steady amid global uncertainties and inflation. Dun & Bradstreet expects the 91-day Treasury Bill yield to stabilise at 6.5% in November 2024, while the 10-year G-Sec yield will likely stay around 6.8%. Short-term yields have eased slightly, but long-term yields remain stable, suggesting a cautious outlook with no immediate rate hikes. Meanwhile global economic factors and geopolitical risks will continue to influence India's bond market.

Credit growth is projected to moderate to 12.7% in November 2024, as the RBI prioritises inflation control and financial stability. Despite ample liquidity, tighter credit conditions are expected, reflecting the RBI's cautious approach to prevent overheating and maintain asset quality. This balanced policy is expected to support growth while managing inflation risks.

External Sector: India's external sector faces pressures from decelerating foreign portfolio investment (FPI) inflows, constrained export growth due to global competition and weaker demand, and a widening fiscal and current account deficit driven by high oil and commodity imports. This has increased demand for foreign currencies, contributing to the depreciation of the Indian Rupee (INR) against the US Dollar (USD), Dun & Bradstreet expects INR to reach 84.5 per USD by December 2024. Factors such as slower global growth, rising commodity prices, and a stronger USD will continue to weigh on the currency. However, India's strong domestic growth prospects, resilient banking system, and diversified economy offer some protection against a sharper decline in the rupee.

Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet said, "India's economic outlook for November 2024 shows resilience amid challenges. While industrial production is indicating signs of recovery, growth will likely slow down due to seasonal factors and struggles in the mining and electricity sector. Inflation, driven by rising food and energy costs, remains a concern, which is likely to prompt the RBI to assume a cautious stance. A weaker rupee and falling foreign inflows add pressure on inflation, though strong forex reserves provide some buffer. The economy remains vulnerable to external shocks and rising import demand. Effective policy management is key to balancing inflation, external risks, and growth."

About Dun & Bradstreet:

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