What we read from the RBI forward looking surveys

11 Oct 2023 , 09:18 AM

Every two months, the RBI releases its forward looking surveys. These surveys typically give insights into fairly critical areas like consumer confidence, inflation expectations, manufacturing sector performance, industrial outlook, macroeconomic indicators, and a survey of bank lending. The RBI typically polls an unbiased sample of respondents and collates the survey findings accordingly. These are critical data points that help the RBI in formulation of monetary, apart from the hard data flows that come in. Here are some major takeaways from the RBI bi-monthly forwards looking survey released in October 2023.

Reading 1: There is a clear rise in consumer confidence for next year

The survey of consumer confidence is based on data collected about the confidence that consumers have on the Indian economy, one year down the line. It is a one-year forward survey. The survey was conducted in September and the good news is that consumer confidence one year ahead has reached a 4-year high. People are generally optimistic about the overall economic conditions as well as the prospects of employment in the coming year. The consumer confidence on jobs, income and spending power is much higher from a one-year ahead perspective, which shows a sudden spurt in optimism among people. 

What is interesting is that most households remain very optimistic about the ability to save one year down the line, despite high inflation eroding their family budgets and their savings in the current scenario. The obvious corollary to this is that people in general are less pessimistic about inflation as compared to one year back. Majority of the respondents believe that one year down the line, the economic growth will be more salutary while the inflation impact on their budgets would be much lower.

Reading 2: People are expecting perceptibly lower inflation next year

This is broadly related to the previous point, but considering its importance it deserves a separate treatment. Household inflation expectations are critical as the RBI effort is not just to manage the inflation reading but also the household inflation expectations. Compared to the last survey in July 2023, the consumer perception of inflation has moderated by 50 basis points. For the 3 month ahead period, the median inflation expectation is down by 90 bps, although the one year expectation is just half of that. It could be because people expect that, with a slew of elections coming up, the government would adopt measures to keep inflation in check at all costs.

Interestingly, the expectation is that the lower inflation would be across most product groups. Among the respondents, only the self-employed were less positive about inflation next year. Most people in jobs had a positive view on future inflation. There is a greater degree of confidence that goods inflation would taper, although people look less confident that the prices of services would also taper in sync.

Reading 3: Companies less positive on output and utilization

Companies on the business side are more cautious about output, order flows and capacity utilization. In fact, the June quarter saw capacity utilization coming down from 76.3% to 73.6% on a sequential basis. Most manufacturers also reported a seasonal fall in new orders, but that may not be much to worry about as such seasonal shifts are normally very short lived. According to the survey, there has been some pressure on sales, if you go by the rising ratio of finished goods inventory to sales. However, the ratio of raw material inventory to sales reduced, hinting at greater drawdown of raw materials.

The capacity utilization has fallen sharply back to the one-year ago levels and most of the damage comes from the export sector where demand has been lax amidst weak global trade and fears of recession in the US and Europe. The growth in new orders and pending orders has been negative in the current quarter to June 2023, but that could be more a seasonal factor. 

Reading 4: Industrial outlook survey still shows lot of optimism

The industrial outlook survey is based on previous quarter numbers and outlines the outlook for the September 2023 quarter. Most manufacturing companies showed higher optimism on demand conditions. This is evident from the assessment of order books, sales, and inventories. Most respondents hinted at higher pressure from raw material prices amidst rising inflation but a tempering of the wage bill and finance costs. This is the outlook for Q3FY24 also, wherein the optimism on sales, order books and inventories are still there but the concerns over higher raw material costs are also carried forward.

Reading 5: What professional forecasts say about macroeconomic conditions

The survey of professional forecasters is done across a more elite crowd of experts who give their outlook on various macro parameters. Here are some key takeaways from the survey of professional forecasters released by the RBI.

• For FY24, the real GDP growth has been revised up by 10 bps from 6.1% to 6.2%. The estimate for growth in real GDP for FY25 has been kept at 6.3%. However, these are the median estimate. The actual range of GDP estimates for FY24 ranges from 5.7% to 7.2% while for FY25, the range is from 5.4% to 7.6%. 

   

• The annual growth in real private final consumption expenditure is expected at 6% for FY24 and at 7.2% for FY25. Even the real gross value added (GVA) has been revised up by 20 basis points to 6.1%. GVA is the GDP growth adjusted for the impact of indirect taxes and subsidies.

   

• Consumer inflation or CPI is forecast by the experts at 5.5% for FY24 and at 4.7% for FY25. So, inflation is going to remain above the RBI target of 4% for quite some time to come. However, the optimistic forecast for core inflation (excluding food and fuel) is pegged consistently at below 5%.

   

• On the external front, the exports in FY24 are expected to contract by -5.9% while the imports are likely to contract by -4.5%. The expectation is that the current account deficit (CAD) would be pegged at 1.5% of GDP for FY24 and at 1.6% of GDP for FY25.

Reading 6: What the bankers expect on credit offtake?

There are some interesting quarterly expectations coming up from senior bank officials. Here are some major readings.

• In Q2FY24, the banks are expecting improved loan demand led by sectors like manufacturing, services, retail, and personal loans.

   

• For Q3FY24, the banks are expecting optimism on demand from loans coming from mining, infrastructure, and the personal loans segment.

   

• For the fourth quarter of FY24, bankers continue to remain optimistic on credit offtake growth with the triggers coming from lower loan costs.
   

How do we sum up the readings of the survey. The overall shift in the latest bi-monthly projection of macros and consumer confidence appears to be positive. In general households are expecting growth to pick up and inflation to fall in the coming quarters. On the business front, global trade appears to be the pressure point for now.