Consumers are getting optimistic about general economic situation: RBI

Consumers are getting optimistic about the general economic situation in the country. According to a March quarter survey by the Reserve Bank of India (RBI) the current situation index, compiled on the basis of net responses on the economic situation, income, spending, employment and the price level for the current period and a year ahead, “returned to optimistic territory after a gap of two years”.

The future expectations index, which is also based on the above mentioned criteria, touched 133.4, “an all-time high in the survey’s history”, the RBI said. The survey was conducted in 13 major cities. This is the second consecutive quarter of improvement in consumer confidence, the RBI said.

“Improvements seen in the December 2018 round gained traction in the March 2019 round, with both the current perceptions and expectations for the year ahead showing a marked rise,” the central bank said, adding, “the employment scenario, which had been the major worry for households for some time, entered the optimistic zone for the first time since the November 2016 round.”

Respondents perceived an improvement in the price situation during the past one year and also expected improvement in the next one year, while there was a gradual improvement in the households' sentiment on income as well.

“While 25 per cent of the respondents believed their income was higher on a year-on-year basis in the March 2018 round, this share rose to 30 per cent in the recent round,” the RBI said.

According to the central bank, a ‘marginal’ fall in the proportion of respondents reporting increase in overall spending over the past one year may be reflective of moderation in the price situation. However, the sentiment on discretionary spending was less upbeat than a year ago.

OBICUS

The Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the December quarter, covering 909 manufacturing companies, showed capacity utilisation rose to 75.9 per cent, a slight improvement over the previous quarter.

New orders received on a year-on-year and quarter-on-quarter basis were lower, “with growth moderating for the second successive quarter”. “With some moderation in sales growth in Q3 of 2018-19 and with less orders received, the manufacturing sector scaled down inventories of finished goods and raw materials. As a result, the finished goods inventory to sales ratio and the raw materials inventory to sales ratio declined in Q3FY19 from the previous quarter,” the OBICUS survey said.

Inflation expectations 

The three months ahead and one year ahead median inflation expectations of households dropped by 40 basis points each, relative to the last survey round conducted in December 2018. “On a cumulative basis, median inflation expectations came down by 160 basis points for the three months ahead horizon and by 170 basis points for the one year ahead horizon from the September 2018 round.” A smaller proportion of respondents believed that prices will rise at more than the current rate over the year ahead horizon, reflecting mainly their sentiments with respect to food prices and the cost of housing, the RBI said.

Professional forecasters

Survey of professional forecasters suggested that growth was expected to moderate in 2018-19, but rise again in 2019-20. The professional forecasters expected gross domestic product to grow at 7 per cent in 2018-19, with an improvement of 30 basis points in 2019-20. Headline consumer price index (CPI) inflation is expected to moderate to 2.4 per cent in the fourth quarter of 2018-19, but increase gradually to reach 4.2 per cent by the fourth quarter of 2019-20. 

The CPI inflation, excluding food and beverages, pan, tobacco and intoxicants and fuel and light, is expected at 5.3 per cent in the fourth quarter of 2018-19, but will likely remain below 5.0 per cent till the fourth quarter of the present fiscal.