Mumbai: India faces the risk of imported inflation with the upward movement of global commodity prices and the factory output is expected to grow by just 0.0 per cent to 0.5 per cent during January 2017.
The rupee depreciation will add to inflationary pressure, reducing the possibility of a rate cut in the near future. D&B in its ‘Economic Forecast’ expects the CPI inflation to be in the range of 3.4 per cent and WPI inflation to be in the range of 5.5 per cent to 5.7 per cent during February 2017, respectively.
It says while the WPI inflation is expected to edge further upwards, the second-round impact of the industrial input prices will feed into the inflation in the coming months.Several factors are expected to fuel inflation. They include increasing demand following the unfolding of the remonetisation process will further fuel inflation and record foodgrain production coupled with the thrust in the rural demand provided in the Union Budget.
The industrial sector faces constraints from subdued domestic demand and weak, uncertain external demand on one hand and financing constraints, rising input prices and stalled projects on the other hand.
Low capacity utilisation in the manufacturing sector along with risk aversion as stressed assets continue to pile up will keep growth of bank credit weak, says D&B.
“The excess liquidity and the rising stressed assets in the banking system will hold back any further rate cut. It is thus very critical for private investment activity to pick up to support growth,” said Dr Arun Singh, lead economist, Dun & Bradstreet India.
