Industrial activity to remain subdued in near term

India's industrial activity is expected to remain subdued in the near term, owing to muted domestic demand, weak global economic outlook and uncertainty among businesses over the outcome of Lok Sabha elections, 2019, says a report.

According to D&B Economy Forecast, concerns about the government curtailing its investment due to a significant shortfall in tax collections against the target, are expected to keep the industrial activity subdued in the near term.

Dun & Bradstreet (D&B) expects Index of Industrial Production (IIP) to have moderated by 1.5-2 per cent during December 2018.

As per data released by the Central Statistics Office (CSO), industrial output growth dropped to a 17-month low of 0.5 per cent in November on account of contraction in the manufacturing sector, particularly consumer and capital goods.

Factory output as measured in terms of the IIP had grown by 8.5 per cent in November 2017.

D&B Lead Economist Arun Singh said the likelihood of robust economic growth during 2018-19 was dented by unfavourable developments and unexpected shocks that occurred during the year.

He said the upcoming union budget will set the tone for the economy.

"We believe that there are likely to be some populist measures announced in the Budget, given it is the election year, around the rural and MSME sectors and overall job creation," Singh said adding that the initiatives around labour and land laws if taken, would be an added support.

On rupee, the report said concerns over widening trade deficit, a rise in global crude oil prices, and uncertainty over the general election outcome are expected to drag down the domestic currency in the near term, even as a likely pause in the US Fed rate hike is expected to support the local unit.

D&B expects the rupee to depreciate to around 70.6-70.8 per US dollar during January this year.