Weak investment activity is likely to restrain economic growth at 6.6 per cent for the quarter ended March 2017, says a Dun and Bradstreet report. Going forward, normal monsoon is expected to provide the requisite boost to demand, while transition to GST regime is likely to create some disruption and impact the short-term sales volume across businesses. “Weak investment activity as reflected in the subdued capital goods and infrastructure/construction sector output growth is likely to restrain growth,” the report said.
According to D&B, the economic growth, as measured by GVA (gross value added), is likely to grow by 6.6 per cent for the fourth quarter of 2016-17, as compared to the same period year-ago.
Further, D&B expects the Index of Industrial Production (IIP) to remain weak and grow by 3-3.5 per cent in April 2017. “While the revised IIP data series tries to address the fluctuations in the production data, the coefficient of variation indicates that volatility still exists in the IIP data, especially in the capital goods sector,” Dun & Bradstreet India lead economist Arun Singh said. “The traction in the capital goods sector remains elusive and the downtrend in the intermediate goods and consumer goods sector poses concern on the pace of revival of the IIP during the course of the year,” he said.
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Moreover, Singh noted that “the disruption to the economic activity, as both the manufacturing and services sector gear up to implement the rules and regulations posed by GST, would take time to normalise.” On the inflation front, D&B estimates excess liquidity in the banking system along with elevated global commodity prices and increase in house rent allowance under the 7th Pay Commission to continue to provide upward pressure to prices. “The base effect along with deflation in the vegetables and pulses section and appreciation in rupee would keep the inflation rate lower in the near term,” the report said. “The CPI inflation is expected to be in the range of 2.3-2.5 per cent and WPI inflation to be in the range of 3.7 – 3.9 per cent during May 2017, respectively,” it said.
The report also noted that while rupee continues to remain overvalued, fund inflow from foreign institutional investors and foreign direct investments is expected to keep rupee stable in the near term. “Rupee nonetheless remains under pressure from concerns over protectionist policies by the US government, subsequent forecast of monsoon and any geo-political strains, and is expected to trade in the range of around Rs 64.1-64.3 per US dollar during May 2017,” the report said.