A worker removes a molten metal alloy from a furnace while sand casting a snap ends of a rope barricade at a factory in Aligarh, Uttar Pradesh. (Photographer: Udit Kulshrestha/Bloomberg)

Capacity Utilisation Across Indian Industry Rises On Strong Demand

The Indian economy may not quite be firing on all cylinders yet, but it is getting close. As consumer demand remains strong, slack in the economy is slowly reducing, shows data released by the Reserve Bank of India on Wednesday.

The quarterly ‘Order Books, Inventories and Capacity Utilisation Survey’ conducted by the RBI shows that capacity utilisation at the end of the March quarter picked up to 75.2 percent. This compares to 74.1 percent in the preceding quarter and 74.6 percent in the same quarter last year.

The survey covers 1,061 manufacturing companies and provides a snapshot of the demand conditions in the Indian manufacturing sector.

However, the evidence of improved capacity utilisation came with a cautionary note attached. New orders declined sharply in the fourth quarter, although the order backlog jumped due to a sharp rise in new orders in the September-December 2017 quarter. The ratio of ‘finished goods inventory’ to sales saw a small drop as a result of strong sales growth.

Capacity Utilisation Across Indian Industry Rises On Strong Demand

Inflation Expectations Remain Elevated

Higher prices of daily-use items like petroleum products along with household goods and services have led to household inflation expectations remaining elevated.

The RBI’s forward looking inflation expectations survey shows that:

  • Both three months ahead and one year ahead median inflation expectations rose by 20 basis points (bps) than in the May 2018 survey.
  • Three months ahead and one year ahead median inflation expectations increased by 140 and 150 bps, respectively, when compared with the June 2017 round
  • However, the proportion of respondents expecting prices to increase at more than the current rate in the next three months remained similar to that in the May 2018 round.
Capacity Utilisation Across Indian Industry Rises On Strong Demand