Consumers turn gloomy about economic situation, employment: RBI survey

Perceptions on the general situation and employment softened, finds survey

Indian consumers are generally getting less optimistic about the economic situation, employment, and fear price rise over the year ahead, according to surveys released by the Reserve Bank of India (RBI).

The RBI’s consumer confidence “declined in July as reflected in the current situation index (CSI); the future expectations index (FEI) fell by about 4 points,” the RBI said. 

“Consumers’ perceptions on the general economic situation and the employment scenario softened, while their assessment of their own incomes turned out to be less optimistic than in May 2019.”

Responses totaling 5,351 in 13 major cities perceived a rise in the price level and the majority expect prices to rise over the year ahead.

“… this boosted sentiments on overall spending, but they were less optimistic about discretionary spending,” the survey said.

A separate Order Books, Inventories and Capacity Utilisation Survey (OBICUS) showed that capacity utilisation, on a seasonally adjusted basis, declined by 1.1 percentage points to 74.5 per cent in the fourth quarter of 2018-19. At an aggregate level, however, capacity utilisation rose 0.2 percentage points to 76.1 per cent in the fourth quarter. 

Interestingly, although fewer new orders were received in the fourth quarter, relative to the preceding quarter, order books increased on a year on year basis and moved into expansion zone on the back of favourable base effects.

There was decline in sales, and raw materials to sales ratio also rose. 

In yet another survey, the respondents said order inflows, output and employment conditions remained tepid in the first quarter of the current fiscal.

Sentiments on exports remained largely unchanged from the previous quarter, but in the optimistic zone; on imports, however, optimism waned, the RBI said. Optimism on the overall financial situation was maintained with improved sentiments on availability of finance from banks and internal accruals. 

While manufacturers increased selling prices in to pass on pressures of rising interest payments on borrowings, cost of raw materials and salary expenses, “but pessimism on profit margins continued to prevail.”

Economy Surveyed

• Economic situation expected to remain tepid
• Consumer confidence in decline
• Fewer orders received 
• Sales fell, raw materials rose 
• Overall business sentiment upbeat 
• Demand to increase moderately

However, overall business sentiment remained upbeat, as the respondents expect modest improvement in demand conditions, the RBI said.

Professional forecasters expect the real gross domestic product to be at 6.9 per cent in 2019-20 and by 7.2 per cent in 2020-21.

Indian households, meanwhile, expect the three month ahead median inflation at the same level where they saw it in May — unchanged at 7.6 per cent . “One year ahead median inflation expectations moderated by 20 basis points to 7.9 per cent,” the RBI’s Households’ Inflation Expectations Survey said, adding fewer households expect inflation to rise over the year ahead than in May 2019.