HYDERABAD: The RBI’s latest quarterly forward looking surveys give conflicting signals on demand, investments and growth. While future expectations of households on the general economic situation touched 133.4 — an all-time high in the survey’s history — in the March quarter, the industrial outlook survey of the manufacturing sector indicated that demand conditions were broadly similar to the previous quarter, with a modest improvement in sentiments on production, employment and exports offset by deterioration in optimism on imports, while the assessment of order books remained unchanged.
Confidence surveys are considered a proxy to gauge aggregate demand and also to get a fingertip feel of the public pulse on key economic parameters.
Households giving thumbs up on economy is due to high expectations of income and employment, and ideally translates into higher spending expectations. But it’s in contrast to RBI’s own growth outlook on economy, which is presumably slowing down, prompting the central bank to reduce rates Thursday.
For households, the employment scenario which had been a major worry, entered the optimistic zone for the first time since the November 2016 round, but capacity utilisation of firms rose marginally to 75.9 per cent during Q3FY19.
Analysts would like it to touch 80 per cent, because that’s when the corporate investment cycle will pick up and create jobs. New orders stood lower with growth moderating for the second successive quarter, creating another headache for industries, while inventories-to-sales ratio declined with moderation in sales growth and with less orders.
Far removed from the travails of the industry, households perceived an improvement in inflation, income and expenditure, while manufacturers were less hopeful of easier availability of finance from banks, but expect moderation in cost pressures, including cost of finance, raw materials and salary expenses, which brought respite to manufacturers reeling under stressed profit margins.
However, the overall financial situation turned around, with improved availability of finance from internal accruals.
Going forward, during the current quarter, demand will likely see softer expansion with the prospect of employment holding up, while the overall sentiment on the overall financial situation remained optimistic on expectations of easier availability of finance from internal accruals. Companies are also anticipating large increases in staff costs and muted optimism on profit margin.
Professional forecasters peg real GDP to grow at 7 per cent in FY19, lower than the government expectations, but it is expected to inch up 30 bps in FY20.