Resilient Yet Cautious: Policy-Driven Growth Amid Uncertain Times - DUN & BRADSTREET

MUMBAI, India, March 6, 2025 /PRNewswire/ -- Dun & Bradstreet, a global leader in business decisioning data and analytics, has released its Economy Observer report for February 2025. Economy Observer is a monthly report sharing in-depth analysis of key macroeconomic developments in India and provides forecasts for key economic indicators, and insight into the expected direction of the Indian economy.

Key economic forecast:

Real Economy: Dun & Bradstreet projects the IIP for January 2025 to moderate slightly to 3.0% from 3.2% in December 2024, as domestic demand remains subdued and global trade uncertainties persist. Although December saw a reduction in consumer non-durables (-7.6%) and a slowdown in infrastructure and construction goods due to delayed investments, capital goods remained resilient, signaling ongoing capacity expansion. Manufacturing sector is expected to show marginal improvement, aided by budget-driven support, while electricity generation is likely to remain stable. External risks, including potential US tariffs, may create near-term challenges for key export sectors like chemicals, metals, and automobiles, but with sustained policy efforts, demand revival and investment confidence are expected to improve in the coming months.

Price Scenario: India's price scenario in February 2025 indicates easing inflationary pressures. Dun & Bradstreet expects WPI inflation to edge up to 2.4% in February from 2.3% in January, driven by marginal increases in input costs and global commodity price fluctuations. CPI inflation is forecasted to increase slightly to 4.4% in February from 4.3% in January, reflecting food and fuel cost pressures and increased rural demand. While food prices remain elevated, better rabi crop arrivals and policy measures, including stock limits on essential goods, are expected to contain price pressures. Prevailing La Nina conditions in the Pacific Ocean should provide a boost to crop yields, particularly for kharif crops. Additionally, a stable fuel price environment and softer core inflation trends are expected to support overall disinflation. Dun & Bradstreet anticipates inflation to remain within manageable levels in the near term, though global uncertainties and weather-related risks could influence price trends going forward.

Money & Finance: India's financial markets are expected to see moderate adjustments in February 2025, driven by evolving monetary conditions and economic dynamics. Dun & Bradstreet expects 91-day Treasury Bill yield to remain range bound at around 6.5% in February 2025, compared to 6.6% in January, reflecting expectations of further monetary easing and better liquidity conditions. Similarly, the 10-year G-Sec yield is expected to moderate slightly to 6.7% in February from 6.8% in January, as inflationary pressures ease slightly, and the government's borrowing remains stable. The Reserve Bank of India (RBI) has infused around INR2.7 trillion of liquidity in the banking system since January, via OMO purchases, secondary market debt purchases, dollar/rupee swaps and longer duration variable rate repo auctions, with a further OMO operation planned. This has helped stabilize yields and address liquidity concerns. Dun & Bradstreet forecasts the bank credit growth to slow to 11.2% in February from 11.4% in January, as elevated interest rates and cautious lending policies continue to weigh on credit demand. This moderation indicates a balancing act between economic growth and financial stability, with banks focusing on risk management amid evolving macroeconomic conditions.

External Sector: India's external sector is facing significant pressure, with the Indian Rupee (INR) depreciating sharply amid a slowdown in foreign portfolio investor (FPI) activity. In January 2025, the INR/USD exchange rate stood at 86.3 and Dun & Bradstreet expects it to further weaken to 87.1 in February 2025 and 87.2 by March 2025. Despite significant interventions by the RBI in the currency market (estimated to be upward of USD80 billion in the four months until February), the continued depreciation is driven by a stronger US dollar, persistent global economic uncertainties, and sustained capital outflows.

Arun Singh, Global Chief Economist, Dun & Bradstreet, said, "India's economy is cautiously recovering, driven by policy-led infrastructure investments and fiscal reforms, despite weak domestic demand and global trade uncertainties. Industrial production is stabilizing, with capital goods and electricity generation resilient. Inflation remains manageable, with slight upticks in February 2025, but food price pressures should ease due to policy actions and better crop yields. Financial markets are adjusting to changing monetary conditions, with bond yields moderating and continued RBI liquidity support helping to maintain stability. The external sector faces challenges, with the rupee depreciating due to a strong US dollar and capital outflows. The outlook depends on the effectiveness of fiscal and monetary measures."

*Weekly Average **Dun and Bradstreet Forecasts.

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