RBI’s position in its monetary policy review on October 4, which slashed growth forecast from 7.3 per cent to 6.7 per cent for fiscal 2017-18
RBI surveys show general economy in ‘pessimistic zone’, jobs big worry
A SERIES of surveys undertaken by the Reserve Bank of India (RBI) have indicated that more people see consumer confidence declining, business sentiment in manufacturing dipping, inflation on the rise and growth sliding. The findings are in sync with the RBI’s position in its monetary policy review on October 4, which slashed growth forecast from 7.3 per cent to 6.7 per cent for fiscal 2017-18.
The current perceptions of households on the general economic situation remained in the pessimistic zone for four successive quarters, with the outlook worsening, the RBI said.
The Consumer Confidence Survey, released by the RBI on October 4 soon after it unveiled the bi-monthly monetary policy, says the response for the current perception on the general economic situation showed 34.6 per cent saying “improved” as of September 2017, down from 44.6 per cent in September 2016.
According to the survey, 40.7 per cent of respondents say the economic situation has worsened in September 2017 as against 25.3 per cent in the same period last year. The response for “one year ahead expectation” shows a decline to 50.8 per cent on the issue of economy “will improve” — down from 66.3 per cent in December 2016.
The Consumer Confidence Survey was conducted in six metropolitan cities — Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi — and obtained 5,100 responses on household perceptions and expectations on the general economic situation, the employment scenario, the overall price situation and their own income and spending.
“The Current Situation Index (CSI) — a sub-index of the RBI’s consumer confidence survey that measures overall consumer sentiments toward the present economic situation — slipped further into the pessimistic zone, reflecting deterioration in sentiments on the employment scenario, the price level and income,” the RBI said.
The same set of parameters caused the Future Expectations Index (FEI) — a sub-index that measures overall consumer sentiments toward the short-term (six-month) future economic situation — to slip further in the September 2017 round relative to its reading in the June 2017 round, the RBI said.
Employment prospects have been the biggest cause of worry for respondents, with sentiment plunging further into the pessimistic zone; the outlook on employment has also weakened in the last two rounds.
The RBI survey said that as much as 43.7 per cent of respondents believed current perception about employment has “worsened”, which is much higher than the 31.4 per cent in November 2016. The Indian Express has reported last week that several companies, including L&T, banks, telecom firms and tech companies, have cut jobs in the last 12 months.
According to the RBI survey, respondents’ pessimism on the price level has also accentuated in the recent period. However, their outlook on inflation softened in the last two rounds.
The perception of people on income levels has also come down to 26.6 per cent in September 2017 from 37.3 per cent in November 2016, indicating that the overall sentiment moved into the pessimistic zone in the current round. The outlook on income, though optimistic, dipped further in relation to the June 2017 round, it said. But despite gloomy sentiment on income, more than 80 per cent of respondents reported increased spending over the past year, which could partly be attributed to higher prices.
The RBI’s Survey of Professional Forecasters on Macroeconomic Indicators, said that forecasters have moderated their growth expectation for 2017-18 and 2018-19 in view of tempered assessment of private consumption demand and industrial growth.
Nevertheless, they expect growth consolidation with higher saving and investment rate in 2018-19. Real gross domestic product (GDP) and real gross value added (GVA) are likely to grow by 6.8 and 6.6 per cent, respectively, in 2017-18 and at 7.4 per cent each in 2018-19.
It says headline consumer price inflation is expected to increase to 5.0 per cent in the first quarter of 2018-19. Core inflation — CPI, excluding food and beverages, pan, tobacco and intoxicants, and fuel and light — which is currently higher than headline inflation, is also expected to increase by 60 basis points to 4.9 per cent in Q2:2018-19. On the external front, they anticipate improvement in foreign trade in the current year as well as in the next year.
In another survey — Industrial Outlook Survey of the Manufacturing Sector for Q2 of 2017-18 — the RBI said that overall, business sentiment in the manufacturing sector has worsened, as reflected in the decline in the Business Expectations Index (BEI) from 105.4 in Q1 of 2017-18 to 103.6 in Q2 of 2017-18.
The outlook for demand parameters for the third quarter 2017-18 improved across parameters. However, availability of finance may deteriorate further in Q3 of 2017-18. “The outlook on cost of raw materials and cost of finance for Q3 of 2017-18 improved but manufacturing sector may continue to lose pricing power resulting into low profit margin,” it said.
Arun Singh, lead economist, Dun & Bradstreet India, said benefits of low commodity prices till last year may not be available this year. While the recent cut in retail prices of petrol and diesel is a welcome step from the inflation standpoint, it will take few months before it shows in the inflation numbers. “On one side, inflationary pressures are building up, slowdown in growth on the other side continues to be a major concern. Both the government as well as the RBI should work in tandem towards achieving some targeted goals in boosting the growth momentum,” Singh said.
According to Kotak Institutional Equities report, on the downside, a faster than expected rise in input costs and lack of pricing power may put further pressure on corporate margins, affecting value added by industry. “Moreover, consumer confidence of households polled in the Reserve Bank’s survey has weakened in terms of the outlook on employment, income, prices faced and spending incurred,” it said.
The Kotak report indicates that the writing on the wall is clear. “GVA growth has been revised down… taking into consideration decline in growth in Q1 FY18, projections of lower farm production and uncertainties in manufacturing activity due to GST implementation,” Care Ratings said. This coupled with high level of stress in companies’ and banks’ balance sheet is expected to further discourage investments in the economy, it said.