RBI Industrial Outlook Survey Points To Souring Business Sentiment
Business sentiment declined in the third and fourth quarters, shows the RBI’s Industrial Outlook Survey
An industrial outlook survey conducted by the Reserve Bank of India (RBI) has pointed to a decline in business sentiments over the third and the fourth quarters of the current fiscal year.
The survey, conducted between October and December, shows that businesses were less optimistic about several parameters like order books, capacity utilisation and imports. The mood around exports, however, improved reflecting a recent pick-up in export growth.
The Business Expectations Index, based on a survey of 1,221 manufacturing companies showed a decline in both the third and fourth quarters of the current fiscal year. The outlook for demand conditions deteriorated between the third and fourth quarters as well, showed the survey.
The Industrial Outlook Survey, while not a reflection of the central bank’s own views, gives a good indication of conditions in the manufacturing sector. This edition of the survey was conducted against the backdrop of the government’s decision to withdraw notes of Rs 500 and Rs 1000 from circulation starting November 8. The move was widely seen to have impacted the levels of economic activity, although there is still no clear indication of the extent of impact.
The results of the survey released on Tuesday, while not conclusive, give some indication of the evolving mood in the economy.
Among the different components of the index, there was a deterioration in the net positive expectation in the production, order books and capacity utilisation indicators. The extent of optimism in the employment and financing segments also declined. A net positive response reflects expansion/optimism while a net negative response reflects contraction/pessimism.
While the index has fallen, none of the major categories have fallen into the contraction zone.
Takeaways From RBI’s Industrial Outlook Survey:
- Net positive response for production declined from 28.9 in Q3 to 27.8 in Q4
- Net positive response for order books declined from 24.7 in Q3 to 20.9 in Q4
- Net positive response for capacity utilisation declined from 17.2 in Q3 to 16.4 in Q4
- Net positive response for exports improved from 11.2 in Q3 to 12.1 in Q4
- Net positive response for employment declined from 9.1 in Q3 to 5.2 in Q4
- Net positive response for availability of finance from 20.2 in Q3 to 17.4 in Q4
- Net negative response for cost of finance eased from -7.5 in Q3 to -0.3 in Q4
Private Surveys Throw Up Mixed Results
Private forecasters continue to try and assess the impact of demonetisation on the economy. The State Bank of India (SBI) leading indicators index for January shows a rebound in economic activity.
“The yearly SBI Composite Index (YoY) for January 2017 improved to 47.0 (Low Decline), compared to last month’s index of 45.5 (Moderate Decline). The monthly Index also increased to 50.9 (Low Growth) in January 17 from 49.4 (Low Decline) in December 16,” the SBI Ecowrap said.
The index level, however, continues to point to a decline in the Index of Industrial Production (IIP) in December and January. Industrial output surprised positively in November and showed an increase of 5.7 percent over the previous year.
As per the Index, we believe IIP growth may continue to contract in December’16 and January’17, with pace of contraction similar in December and January with a degrowth of anywhere between 3-6 percent.SBI Ecowrap (January 25)
In a separate report, released on Wednesday, Nomura Economic Research said that its economic heat-map suggests that growth has slowed since demonetisation, with the slowdown sharper in December than in November. Consumption and services, the fastest growing segments pre-demonetisation, were the worst hit, said the report.
Nomura expects growth to slow in the third and fourth quarters of the current year, but forecasts a V-shaped recovery from there on due to pent-up demand.