What do the RBI’s forward-looking surveys reveal about the Indian economy?


The key function of central banks is to maintain price stability, which is accomplished through the use of monetary policy instruments. Any central bank action generally has an impact on the economy and financial markets. Before making such decisions, the Reserve Bank of India will conduct a series of forward-looking surveys on a quarterly basis to find out more about – How consumers are responding to inflation, how companies are handling input cost pressure and what that they anticipate the future pressure on costs and on the growth of bank loans. The answers to these important questions will help central bank policy decisions.

Here is an overview of the key findings from the recent survey results released by the RBI on August 05.

Consumer Confidence Survey

The Consumer Confidence Survey shows how confident consumers are about the economy, financial conditions, demand and consumption.

The survey was conducted from July 07 to July 14, 2022, in 19 major cities, with 6,083 respondents.

The survey collects current perceptions as well as one-year forecasts of the general economic situation, the employment scenario, the overall price situation and personal income.

There are two indices in the CCS, one is the Current Situation Index (CSI) and the other was the Future Expectations Index (FEI).

Consumer Confidence Survey

The RBI said consumer confidence continued to recover in successive rounds of the survey after the historic low recorded in July 2021, although it remained in the pessimistic zone.

The current situation index (CSI) improved by 1.4 points, from 75.9 in May 2022 to 77.3 in July 2022. Generally, numbers below 100 are considered to be in pessimistic territory, but if the index is above 100, it indicates optimism.

Respondents are negative about inflation, job creation, the economic situation and current year income levels.

Moreover, the future expectations index showed only marginal improvement, rising to 113.3 in July from 113 in May. The majority of households reported an increase in their current spending and expected the trend to continue for the coming year, according to the survey.

Survey of household inflation expectations

The HIES survey was conducted in 19 major cities. Results are based on responses from 5,935 urban households.

The median perception of household inflation for the current period moderated by 80 basis points to 9.3% in the latest survey, the RBI said.

Furthermore, looking ahead three months and one year, median inflation expectations have also declined by 50 basis points and 60 basis points, respectively, compared to the May 2022 round of the survey.

Inflation Expectations Survey

Inflation Expectations Survey

The share of households expecting inflation to rise has fallen for all product groups compared to the previous survey.

Meanwhile, the main concern of all households in the country is inflation, which is currently hovering around 7%. In June, retail price inflation in India eased slightly to 7.01% from 7.04% the previous month.

However, the CPI exceeded the upper limit of the RBI target range of 2-6% for the sixth consecutive month and remained above 7% for the third consecutive month. Since the start of the year, the Reserve Bank of India has raised interest rates by 145 basis points to 5.40%.

OBICUS investigation

The Order Book, Inventory and Capacity Utilization Survey (OBICUS) provides insight into demand conditions in India’s manufacturing sector. The survey covers the reference period between January and March 2022 and covers 765 manufacturing companies.

According to the survey, capacity utilization accelerated from 68.3% in Q2 2021-2022 to 72.4% in Q3 and 75.3% in Q4, indicating an economic recovery and a improving demand conditions.

However, new order book growth fell to 5.6% in Q4 FY22 from 10.5% in Q3 FY22.

OBICUS investigation

OBICUS investigation

Additionally, RBI’s OBICUS also showed backlog growth was 4.7% quarter-over-quarter in Q4 vs. 3.5% in Oct-Dec 2021 (Q3, 2021-22), while backlog growth was 4.6. % in Q4 versus 7.8% in Q3.

The average amount of new order books for 207 companies in January-March this year was 222.4 crore compared to 224.4 crores in October-December 2021 for 205 companies.

Bank Loan Survey

The Reserve Bank of India has released the 20th round of its quarterly bank lending survey. The survey captures the qualitative assessment and expectations of major regular commercial banks on credit metrics (i.e. loan demand and loan terms and conditions) for major economic sectors.

The survey showed that bankers’ assessment of loan demand for the period remained positive for all major sectors. However, sentiment was somewhat muted from the level seen in the prior quarter, RBI said.

Bank Loan Survey

Bank Loan Survey

Bankers were positive on loan demand from all major sectors during the second quarter of 2022-23, although the level of optimism was somewhat lower than in the previous survey.

Sentiments on overall loan demand in the second half of 2022-23 remain bullish across major borrower categories, the RBI said.

Industrial Outlook Survey (IOS)

This survey captures a qualitative assessment of the business climate of Indian manufacturing companies for the first quarter of 2022-23 and their expectations for the second quarter of 2022-23. A total of 1,239 companies participated in this survey.

The survey found that companies were optimistic about demand conditions, as reflected in their positive assessment of production, order books, capacity utilization and foreign trade.

However, manufacturers have assessed an increase in raw material costs as well as salary expenses during the first quarter of 2022-23; they also perceived an increase in the cost of funds.

Selling price sentiments have hardened in line with input cost pressures; Respondents’ perception of profit margin turned slightly positive during the quarter.

IOS survey

IOS survey

Overall, the business climate in the manufacturing sector remained positive; The business valuation index stood at 110.7 in the first quarter of 2022-23, down from 111.5 a quarter ago, according to the survey.

On the expectations front, companies maintained their optimistic outlook on demand conditions, as evidenced by their expectations on production, order book and employment for Q2:2022-23.

They expect an increase in the cost of raw materials, personnel costs and the cost of financing to probably continue in Q2FY23.

Overall, the Business Expectations Index improved to 137.7 in Q2FY23 from 134.7 in the prior quarter. For the second of fiscal year 23, the Company anticipates an easing of pressure on input costs and an increase in selling prices.

Services and Infrastructure Outlook Survey

This forward-looking survey captures the qualitative assessment and expectations of Indian companies in the services and infrastructure sectors on a set of business parameters related to demand conditions, price situation and other business conditions.

In the latest round of the SIOS survey, 758 companies provided their assessment for the first quarter of 2022-23 and their expectations for the second quarter of 2022-23, RBI said.

The survey shows that activity in the service sector improved and employment conditions improved further in Q1FY23.

Services and Infrastructure Outlook Survey

Services and Infrastructure Outlook Survey

However, perceived cost pressures emanating from the cost of finance, input prices and wages have assessed selling prices higher than in the previous survey, the RBI said.

Services companies remained bearish on profit margins for Q1FY23 valuation.

Respondents say the cost price will continue with a gradual easing in the second half of the year.

On the other hand, infrastructure companies revealed a positive assessment of the overall business situation as well as their turnover.

Survey of Professional Forecasters (SPF)

The survey of 42 professional forecasters on key macroeconomic indicators such as GDP growth rate and inflation rate for the current year and next year.

The 42 panelists expected GDP to grow by 7.1% in 2022-23 – projections revised down 10 basis points (bps) from the last survey, it is expected to grow by 6.3% in 2023-24, the RBI said.

GDP forecasts

GDP forecasts

SPF panelists placed GDP growth forecasts between 6.3 and 8.3% for 2022-23 and between 5.0 and 7.8% for 2023-24; the range for 2022-2023 has narrowed considerably compared to the last round of the SPF, indicating more certainty around the median forecast, the survey showed.

Forecasters assigned the highest probability to real GDP growth in the 7.0-7.4% range in 2022-23. For 2023-24, the highest probability was assigned to the 6.5-6.9% range.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of MintGenie.

These are the monetary policy instruments of the RBI.

These are the monetary policy instruments of the RBI.

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