Capacity Utilisation In Manufacturing Sector Drops To Lowest In A Decade, RBI Survey Shows
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Capacity Utilisation In Manufacturing Sector Drops To Lowest In A Decade, RBI Survey Shows

India’s capacity utilisation in the manufacturing sector dropped to the lowest in at least four years and consumer confidence fell amid a slowing economy. But the outlook is slightly more optimistic than current indicators suggest.

Capacity utilisation, at the aggregate level, declined to 69.1 percent in the quarter ended September from 73.6 percent in the preceding three months, according to the Reserve Bank of India’s forward-looking survey released on Thursday. That’s the lowest since 2008-09 when the central bank first started collating this data. Also, on a detrended basis (seasonally adjusted), capacity utilisation fell 4.5 percentage points from the previous reading to 70 percent.

Capacity utilisation, however, is expected to improve in the ongoing quarter. The RBI’s industrial outlook survey, according to the Monetary Policy Committee’s statement, pointed to weak demand conditions facing the manufacturing sector in the third quarter of the financial year ending March 2020. But the business expectations index suggested an improvement in the fourth quarter. That’s corroborated by the manufacturing purchasing managers’ index for January 2020, which rose to 55.3 from 51.2 in November as output and new orders rose, the MPC noted in it’s resolution.

Capacity Utilisation In Manufacturing Sector Drops To Lowest In A Decade, RBI Survey Shows

Also read: MPC Decision: MPC Keeps Rates On Hold Amid ‘Highly Uncertain’ Inflation Outlook

Current Consumer Confidence Falls

Consumer confidence, too, fell to 83.7 in January 2020 from 85.7 in November. Net consumer response to the current economic situation remained negative for the fourth straight round of the survey, dropping to the lowest since December 2013. Consumers were increasingly pessimistic over the economic situation, price and income compared to the position a year ago, the consumer confidence survey by the RBI said.

Still, the future expectations index showed an uptick. That indicated consumers were marginally more optimistic for the year ahead, especially over employment.

Capacity Utilisation In Manufacturing Sector Drops To Lowest In A Decade, RBI Survey Shows

Inflation Expectations Ease

Inflation expectations of households moderated in January 2020 after a sharp pick up in November. Median inflation expectations over three-month and one-year horizons eased by 60 basis points and 70 basis points, respectively, according to the inflation expectations survey of households.

An increasing number of respondents continue to expect prices to increase, particularly in non-food products, household durables and cost of services.

Capacity Utilisation In Manufacturing Sector Drops To Lowest In A Decade, RBI Survey Shows

Also read: Monetary Policy: RBI Returns To A More Active Credit Policy To Boost Retail, MSME Credit

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