Investment cycle is likely to see an improvement in medium-term largely driven by improved rural income due to normal monsoon and rise in consumption owing to the 7th Pay Commission awards, says a report.
According to D&B Economy Observer Index, while government capital expenditure has gone up, low private investment is likely to keep upturn in investment activity ‘subdued’ in the short term, while the medium term outlook looks bullish.
“Expected improvement in rural income and consumption given normal monsoon and likely demand for consumer goods given 7th pay commission award which was doled out just before the festive season is likely to provide support to growth and investment cycle in the medium-term,” Arun Singh Lead Economist Dun & Bradstreet India said.
According to D&B, while 7th Pay Commission payouts ahead of the festive season is likely to support the consumer goods segment, slowdown in flow of financial resources to the commercial sector, low capacity utilisation and high leverage in the corporate sector is likely to keep IIP muted.
D&B expects IIP to have grown by 0.5-1.5 per cent during August this year.
On prices front, the report said pressure on food prices are likely to ease as supplies hit the market.
D&B sees the WPI inflation to be in the range of 3.8-4 per cent and CPI inflation to be in the range of 4.7-4.9 per cent during September this year.
“While significant moderation in CPI inflation and decline in Index of Industrial Production has raised the market optimism for a policy rate cut, future policy rates would be contingent on the clarity over the course of inflation over the next few months, liquidity pressures arising primarily from FCNR (B) redemptions, spectrum auction and advance tax payments and the probability of the Fed rate cut by December this year,” Singh said.
He further noted that increased volatility in IIP raises the serious concerns to the sustainable recovery.