Consumer Confidence Rises Sharply In March Quarter, Shows RBI Survey

Contrary to growing concerns about a slowdown in consumption, Indian consumers grew more confident of the general economic situation in the January-March quarter, showed a forward looking survey conducted by the Reserve Bank of India.

According to the RBI’s consumer confidence survey released on Thursday, the ‘current situation’ index turned returned to optimistic territory for the first time in two years. The ‘future expectations’ index touched an all-time high.

The survey, conducted across 13 major cities, showed that positive consumer sentiment was led by improved perception of the current economic situation, employment, and income. Consumers also expect improvement in economic situation, employment and spending one year on.

The survey’s results contrast to high frequency indicators such as auto sales which indicate weak consumption demand and a slowdown in the economy. High frequency indicators of the services sector suggest significant moderation in activity, stated the Monetary Policy Committee in it’s resolution on April 4, 2019.

Inflation Expectations Ease

At the same time, households expectations of inflation have eased. The inflation expectations of households for three months ahead and their expectations of inflation an year on, dropped by 40 basis points each in March 2019 as compared to December 2018.

The survey, conducted in urban households across 18 major cities is used by the Monetary Policy Committee to gauge near term inflationary pressure.

Capacity Utilisation Improves; New Orders Fall

Separately, the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey showed improved capacity utilisation but a fall in new orders in the October-December quarter.

Capacity Utilisation rose to 75.9 percent in the October-December period from 74.8 percent in the previous quarter. Seasonally adjusted capacity utilisation also increased by 0.7 percentage points to 76.1 percent.

Improved capacity utilisation is an important indicator to judge the likelyhood of a pick-up in private investments. Typically, private corporations start to consider fresh investments at capacity utilisation levels about 80 percent.

While improving capacity utilisation is encouraging, the order book survey conducted by the RBI showed a decline in new orders in the third quarter.

“New orders received in Q3 2018-19 were lower - year-on-year (Y-o-Y) and quarter-on-quarter (Q-o-Q), with growth moderating for the second successive quarter,” said the RBI.

Slower sales growth and lower new orders in the third quarter led to some scaling down of inventories of finished goods and raw materials. The finished goods inventory to sales ratio and the raw materials inventory to sales ratio both declined in the October-December period, the survey revealed.