RBI forward-looking surveys see green shoots of economic recovery

The essence of these surveys is to paint a picture of the health of the Indian economy from the perspective of the consumer and the perspective of the producer. The main finding was that consumers and producers are seeing very distinct green shoots of economic recovery. This also explains why the RBI maintained its real GDP growth target of 7.2% for FY23, with an upward bias.

1. Sustained recovery in consumer confidence

The July 2022 Consumer Confidence Survey compares consumer confidence results on an annual basis. In terms of the current situation survey, consumers are positive about consumer spending and expect it to improve next year. While still negative on job creation, inflation and income levels for the current year, respondents expect these metrics to improve over the next fiscal year. However, on the overall macroeconomic situation, respondents remain pessimistic. This could be more due to negative global indices.

However, compared to the previous survey conducted in May 2022, there is an improvement in consumer confidence. The results are consistent with a typical macro recovery. Spending is normally the main indicator and this is where consumer optimism is highest. It is said that hope springs eternally in the human heart. While consumer sentiments are mixed for the current environment, most consumers are optimistic about the economic situation; a year does the line.

2. Inflation expectations tend to fall

One of the approaches taken by the RBI and the government over the past few months has been to address the issue of inflation expectations. An aggressive policy of raising repo rates gives consumers confidence in the government’s intention to contain rising prices. This lowers inflation expectations. For July 2022, inflation expectations fell by 80 basis points to 9.3%, compared to 10.1% in the May 2022 survey.

Even the inflation outlook a year later is 50 to 60 basis points lower. In July 2022, the share of people who expect prices to rise; fell from 88.5% to 83.1% in May. While people aren’t too confident about falling prices, static inflation levels are the most common expectation. However, the survey only covers urban households, so the conclusions are partial.

3. Q1FY23 Manufacturing Outlook Shows Demand Optimism

Initially, there was demand optimism among companies for the first and second quarter of FY23. Most companies gave a positive assessment of production, order books, utilization capacities, employment and foreign trade. However, most of the manufacturers surveyed also announced a sharp increase in the cost of raw materials as well as an increase in the cost of funds in the first and second quarters of FY23.

A large portion of the manufacturers surveyed also expressed confidence in their ability to raise the selling price of products to offset soaring input costs. However, most manufacturers expect input cost pressures to ease in the third and fourth quarters of FY23.

The manufacturing outlook should be read with the OBICUS survey for the previous quarter, which gives an assessment of the actual data for order books, production and capacity utilization. The latest OBICUS service for Q4FY22 brought out some inspiring numbers on orders, production and inventory.

Overall manufacturing capacity utilization reached 75.3% in Q4FY22, compared to 72.4% in Q3FY22. Now capacity utilization is above the levels India had before COVID. New orders in Q4FY22 were also significantly higher than in previous quarters. The table below best summarizes this story.


Ability to use

Finished Goods Inventory / Sales

Raw materials inventory / Sales
Q4 (2020-21) 69.4% 22.0% 27.2%
Q1 (2021-22) 60.0% 29.5% 36.9%
Q2 (2021-22) 68.3% 20.9% 29.4%
Q3 (2021-22) 72.4% 22.4% 28.0%
Q4 (2021-22) 75.3% 24.7% 30.5%

The steady increase in capacity utilization reflects business confidence in demand conditions. On the other hand, the steady recovery in inventory ratios reflects greater willingness and readiness to meet the demand for new orders.

4. Macro indicators point to growth optimism

Unlike other sections of the survey, which are aimed at consumers or manufacturers, this is a part of the survey that is aimed at professional experts and forecasters. There is a lot of optimism visible in the macro forecast. For example, economists assign a high probability of 43% that GDP growth in FY23 will be between 7.0% and 7.4%. For FY24, there is a 44% chance that growth will be between 6.5% and 7.5%.

There have also been improved expectations. Real private final consumption expenditure (PFCE) growth was raised by 10 basis points to 7.5%, while real gross fixed capital formation (GFCF) was also raised by 10 basis points to 8, 8% for FY23. In terms of GVA (gross value added), agricultural GVA was lowered by 20 basis points to 3.0% for FY23, while services GVA remained static at 8.3%. However, the good news is that the GVA of industrial production increased by 30 basis points to 5.8% for FY23.

Experts’ view of inflation also matches consumers’ inflation expectations. They expect headline inflation in Q2FY23 to remain above 7%, but gradually decline to 6% by Q4FY23, driven lower by food inflation. However, fuel inflation is expected to remain static. The drop in commodity prices will also be reflected in WPI inflation, which is expected to rise from 13.5% in Q2FY23 to 10.0% in Q3FY23 and 7.4% in Q4FY23, according to the survey.

5. Loans and Banking Sector Expected to Show Robust Growth

These are two separate parts of the survey, but for simplicity the two have been merged. For Q1FY23, loan demand shows positive growth expectations across all major sectors. However, expectations have been dampened compared to previous quarters and this can be attributed to the surge in lending rates, which could impact loan demand. While loan demand in Q1FY23 will still be driven by infrastructure, services and personal loans; credit demand from the manufacturing sector is expected to rise sharply from Q2FY23.

Most service companies surveyed remained optimistic about revenue growth and job creation. However, due to rising operating costs, there was general pessimism about profit margins. This trend should also continue in the third and fourth quarters. On the infrastructure front, overall revenues have exceeded pre-COVID levels. However, cost pressures made respondents cautious about future margins.

To sum up the story from the RBI surveys, there is general optimism that the policy framework will support higher growth and a gradual reduction in inflation. However, at the corporate level, there is still a lot of skepticism on the operating margin front.

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