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RBI's Forward Looking Survey: Consumer sentiment improves marginally

Prosenjit Datta     August 7, 2018

The Reserve Bank of India (RBI) has released the latest round of its forward looking surveys and it shows that neither consumers nor companies (from the manufacturing sector) seem particularly optimistic about the future. Professional forecasters of macro-economic indicators though expect better times - albeit marginally, going forward.

The consumer confidence survey was for the June round, and conducted in six metros - Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi and had 5268 responses. It gauged their perceptions and expectations of the general economic scenario, employment scenario, price situation and income and spending.

Consumer sentiment had improved marginally since the last round - though it remained in pessimistic territory. What was interesting was that the number of respondents expecting better times a year ahead had actually come down from the last round in May. Households remained pessimistic about prices going forward, and less optimistic about their incomes.

The Industrial Outlook Survey (IOS) of the manufacturing sector was done in the first quarter (April-June 2018) and essentially asked 1207 companies about their expectations for the next quarter.

The respondents were less optimistic about demand, and their view was that the financial situation had deteriorated a bit because of overseas finances.

They also expected a drop in profit margins because of increased raw material costs. The business sentiment had actually dropped a bit from the previous round.

The professional macro economic forecasters were the most optimistic in this round of survey. Twenty five participants were part of the panel formed by the RBI in July.

While the general expectation was that consumer price inflation would remain over 4 per cent for the next three quarters (Q2 to Q4) and core inflation to remain over 5 per cent, most expected growth to be high.

Real Gross Domestic Product (GDP) was expected to grow at 7.4 per cent in 2018-19, while it was expected to improve further in 2019-20 to 7.9 per cent.

Private consumption expenditure was expected to grow and so was gross fixed capital formation.  Merchandise exports and merchandise imports for the year were expected to grow sharply - 9.8 per cent and 13 per cent respectively.

However, the forecasters expected a slight slowdown in growth in the next year. The survey also expected the rupee to remain stable against the dollar till Q4 at least.

The slight uptick in consumer confidence index in the survey done by the RBI has been supported by the consumer confidence index of the IPSOS-Thomson Reuters report for July as well, which shows that consumer confidence has indeed improved.

Meanwhile, other business confidence surveys - including one done by Grant Thornton and another by Business Today - show that sentiments remain tepid at best.

Indeed, after four years of the Modi government, both consumer confidence and business confidence seem to be fairly low - perhaps not as bad as it was in the last days of the UPA, but far lower than the sentiment expressed shortly after the government had taken charge in 2014.

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