India's companies aren't as optimistic as RBI on economic growth prospects

Companies were also less optimistic about the availability of finance for the first quarter of the fiscal year, the RBI survey showed

India’s central bank appears optimistic about economic growth prospects, expecting demand and investment to underpin a recovery this year. The nation’s companies aren’t so sure.

A survey of 1,250 manufacturing firms conducted by the Reserve Bank of India shows they’re no longer so confident of an upturn in domestic demand. The companies’ outlook for the first quarter of the fiscal year ending March 2019 worsened across all indicators barring exports and imports, the survey found.

It’s not just businesses: Consumer confidence is also flagging, a challenge for those firms pinning their hopes on consumption picking up. Demand has been hit in Asia’s third-largest economy due to the cash ban in 2016 and the chaotic implementation of the goods and services tax last year. While there are some signs demand is picking up, it’s not enough to fuel wide-spread optimism.

Bloomberg Economics’ Abhishek Gupta says the RBI’s growth projections have proven to be optimistic in the past and history may be repeating itself.

In April last year, the central bank “projected 7.4 per cent growth in gross value added in fiscal 2018, but actual growth is likely to be just 6.4 per cent,” he said. “Looking ahead, we continue to see high real interest rates in fiscal 2019 as a big downside risk to a revival in aggregate demand.”

Companies were also less optimistic on the availability of finance for the first quarter of the fiscal year, the RBI survey showed. Furthermore, rising input prices of raw materials and the cost of capital, along with sluggish demand conditions, have them expecting lower profit margins in the period.