ADVERTISEMENT

India’s Manufacturing Capacity Utilisation Weakened Further: RBI Survey

Capacity utilisation fell to 71.2% in Q1FY18, compared to 71.7% in the year ago period.

A worker stands inside an Akzo Nobel India Ltd. paint factory in Gwalior, Madhya Pradesh, India (Photographer: Udit Kulshrestha/Bloomberg)  
A worker stands inside an Akzo Nobel India Ltd. paint factory in Gwalior, Madhya Pradesh, India (Photographer: Udit Kulshrestha/Bloomberg)  

Capacity utilisation in India’s manufacturing sector fell in the June-ended quarter, tracking the country’s industrial activity which had contracted ahead of the Goods and Services Tax rollout as companies cut stock and put fresh orders on hold.

At an aggregate level, the capacity utilisation at 805 Indian manufacturers fell to 71.2 percent in the April-June quarter, according to a survey by the Reserve Bank of India. This was lower than the 71.7 percent capacity that manufacturers were operating at in the same quarter last year. Utilisation stood at 74.6 percent in the March-ended quarter.

Weak capacity utilisation coupled with mounting corporate debt has prompted the private sector to hold back on capital expenditure. This has left the onus of reviving the economy through increased spending solely on the government.

Ratings agency CRISIL had cautioned that private investments, which are already low due to the large headroom in capacity utilisation, may weaken further if economic growth slows.

The RBI has changed the methodology for compiling capacity utlisation. The change can be seen here in annexure of RBI's survey release.

India’s Manufacturing Capacity Utilisation Weakened Further: RBI Survey

India’s manufacturing activity indicator had fallen to a four-month low in June due to the slow increase in factory orders, lower production and uncertainties around GST implementation. New orders in the first quarter saw a contraction on a sequential basis, but improved “significantly” compared to a year ago, the RBI observed in the survey.

But the situation gets grimmer.

In a separate industrial outlook survey, the RBI said that business sentiment in Indian manufacturing has worsened in the July-September quarter.

The survey showed that respondents from 1,141 companies were less optimistic about their order book growth, raw material inventory, finished goods inventory, and overall business situation. However, they were remained optimistic about pending orders, exports, imports and employment.

Consumer Confidence Slips

Indian households’ perception of the economic situation deteriorated in the September-ended quarter mainly due to the employment scenario, price levels and income.

The current situation index slipped further into the “pessimistic zone”, while households’ expectations for the year ahead fell as well, according to RBI’s consumer confidence survey.

India’s Manufacturing Capacity Utilisation Weakened Further: RBI Survey

The employment situation has been the biggest cause of worry for respondents, with sentiment plunging further into the pessimistic zone, said RBI, adding that the outlook has weakened in the last two surveys.

More than 80 percent of the 5,100 respondents from six metro cities, said that despite a clouded outlook on income, their spending increased over the last year. This could partly be attributed to higher prices, RBI said.

Higher Inflation Expectations

More households expect consumer prices to rise further over the next three months, according to another RBI survey released today.

The proportion of respondents expecting general prices to increase in the next three months went up further in the September 2017 round relative to the previous round of the survey, with more than half of the respondents expecting prices to rise by more than the current rate
RBI Household’s Inflation Survey

The sentiment on inflation expectations remained weak for the year ahead as well, according to the survey. The quantitative responses showed that the median inflation expectations for three months ahead softened by 30 basis points compared to the previous quarter.

India’s Manufacturing Capacity Utilisation Weakened Further: RBI Survey