Weak exports, rural distress, uncertainty over Lok Sabha poll outcome to drag down IIP: Report

India's industrial production is expected to stay muted in the near term, owing to weak exports, rural distress, credit constraints and uncertainty over the election outcome, a report said Monday. According to Dun and Bradstreet's (D&B) latest Economy Forecast, the Index of Industrial Production (IIP) is likely to have grown by 3-3.2 per cent during February 2019.

As per the IIP data in January released by the Central Statistics Office (CSO), the growth in industrial production declined to 1.7 per cent as against 7.5 per cent a year ago, owing to subdued performance of the manufacturing sector, especially capital and consumer goods.

"Given the headwinds in the global economy and domestic structural bottlenecks, the concerns to growth remain heightened," said Arun Singh, lead economist, Dun & Bradstreet India.

Singh further noted that in the short term, the risks remain accentuated as the concerns on the global front are growing while, domestically, the uncertainty on the outcome of the election will tend to keep the investment activity subdued.

On the prices front, the report said, reversal in food prices that have remained unusually low are likely to push up inflation. Moreover, the election-related spending and expected lower kharif crop output would exert additional inflationary pressures.

D&B expects the CPI inflation to be in the range of 2.6-2.8 per cent and the Wholesale Price Index-based inflation to be in the range of 3-3.2 per cent during March, respectively.

According to Singh, some of the key risk factors for the Indian economy are stressed assets in the banking sector, decline in tax mobilisation through GST, ailing rural economy and concerns in key sectors such as telecom, power and real estate.

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He also said, "We hope that the recent efforts to strengthen the balance sheets of the banking sector and corporates turn the wheels of the domestic investment activity. Further, the business and consumer confidence could get an impetus once the uncertainty over the election outcome gets over."