The Reserve Bank of India (RBI) on Monday said further moderation in consumption and investment demand was likely, since high inflation would erode real consumption. It also said the tight monetary policy would restrict investment demand.
According to the central bank, the slowdown in consumption was so far restricted to interest rate-sensitive sectors like car sales. The buoyancy in private consumption was largely driven by improved agriculture growth and support from the consumer durables segment. "Private consumption demand may be adjusting downwards, but still remains strong,” RBI said.
On the other hand, corporate investment intentions, which moderated significantly during the second half of the previous financial year, are yet to show any sign of improvement, RBI said in its macroeconomic and monetary development report.
“Updated information on corporate investment intentions, as captured by project-sanctioned financial assistance by banks and financial institutions, suggest project expenditure on new projects, that were sanctioned as assistance, was strong during the first half of 2010-11, but dipped sharply in the second half,” RBI said.
According to RBI, though envisaged corporate investment in 2010-11 was marginally higher than in the previous year, the slowdown was perceptible, with a 43 per cent drop in the second half from first-half levels.
