Capacity Utilisation Picks Up In Q2 But Remains Below Pre-Covid Level

Capacity utilisation in India’s manufacturing sector improved in the quarter ended September 2020 as the economy opened up following pandemic-induced lockdowns.

The metric stood at 63.3% in Q2 FY21, up from 47.3% in the preceding quarter, according to data from the Reserve Bank of India’s “Order Books, Inventories and Capacity Utilisation Survey”. The data is released with a lag.

Seasonally adjusted capacity utilisation also increased to 64.1% in the second quarter of the ongoing fiscal from 47.9% in the previous quarter.

Services sector firms assessed strong revival in turnover during Q3FY21. Services sector companies expect further improvement in turnover in Q4FY21 .

Consumer Confidence Picks Up

Consumer confidence rose to 55.5 in January 2021 from 52.3 in November last year, according to the RBI’s survey on consumer confidence. Consumers perceived that the ongoing economic situation was significantly worse when compared to a year ago but it has improved from the November 2020 round of the survey, the study said.

Consumers were also pessimistic about the general economic situation, employment scenario, price levels and household incomes when compared to a year ago.

Future expectations index improved from 117.1 in January 2021 to 115.9 in the last round.

Consumer confidence is reviving and business expectations of manufacturing, services and infrastructure remain upbeat, the Monetary Policy Committee noted in its resolution. The fiscal stimulus under Atmanirbhar 2.0 and 3.0 schemes of government will likely accelerate public investment, although private investment remains sluggish amid low capacity utilisation, it said.

In view of the Covid-19 pandemic, the survey was conducted through field interviews, wherever possible, and telephonic interviews elsewhere.

Inflation Expectations Ease

Current inflation expectations of households eased to 8.2% in January 2021 from 8.8% in November. Median inflation expectations over three-month and one-year horizons stood at 9.3% and at 10.1%, respectively, according to the inflation expectations survey of households.

A survey on bank lending indicated bankers expect further improvement in loan demand in the fourth quarter of the ongoing fiscal, which would continue in the first half of the next financial year. Higher optimism is reported especially for manufacturing, infrastructure, services and personal loan sectors. Going forward, banks expect to continue with easy loan terms and conditions, with further softening expected for personal loan segment.