What does RBI’s latest consumer surveys tell us?

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Explainer: What does RBI’s latest consumer surveys tell us?

The findings of RBI’s latest consumer surveys offer some insights to the general economic situation. According to this, consumers expect improvements in the general economic situation, employment conditions and income scenario during the coming year. The discretionary spending, however, is expected to remain low in the near future, the survey said.

The RBI conducted the last round of consumer confidence surveys during August 29 – September 10 in thirteen major cities. The survey assessed perceptions and expectations on general economic situation, employment scenario, overall price situation and own income and spending from 5,364 households across these cities.

According to the survey findings, more respondents reported curtailment in both overall and essential spending during the past one year, when compared with the last survey round. Households were, however, more confident for the year ahead, the survey showed.

The current situation index (CSI) recorded its third successive all-time low, as the respondents perceived further worsening in the general economic situation and employment scenario during the last one year.

Industrial Outlook

Similarly, the industrial outlook survey, conducted during July-September, showed manufacturers expect further improvements in production, capacity utilisation and order books in Q3 of the ongoing fiscal year, the RBI said.

Going forward, respondents polled expect some recovery in the external demand situation and job landscape. “Overall financial situation and availability of finance portrayed optimism,” said the survey.

As for Q2 (July-September quarter), manufacturing companies assessed upturn in production, capacity utilisation and order books during Q2 from the unprecedented contraction in the previous quarter. In all, 959 companies responded in this round of the survey, the RBI said.

The RBI is on a wait and watch mode as far as its monetary policy approach is concerned. In the latest round of monetary policy committee meeting (MPC) last week, the key policy rates were retained while the MPC assured a continuation of its accommodative stance. The low consumer demand across segments have been impacting businesses since March when the Covid-19 lockdown was first announced.

What does it mean?

The key message from the RBI surveys is that some improvement is expected on the manufacturing front and employment scenario going ahead. But, consumers still are hesitant to restart the discretionary spending. Unless the spending picks up, banks may find it tough to grow their loan books in a big way even with availability of liquidity.

During his address at the last monetary policy, RBI governor Shaktikanta Das said relative to pre-COVID levels, several high-frequency indicators are pointing to the easing of contractions in various sectors of the economy and the emergence of impulses of growth.

To support the economy, the RBI has been announcing a series of liquidity measures to make money available for lending institutions so that credit flow to productive sectors continues. But, in a low demand scenario, banks have been struggling to push credit to customers.

On a year-on-year (y-o-y) basis, non-food bank credit growth decelerated to 6.0 per cent in August 2020 from 9.8 per cent in August 2019 while credit to agriculture and allied activities increased by 4.9 per cent in August 2020 as compared with a growth of 6.8 per cent in August 2019. Similarly, credit growth to industry decelerated to 0.5 per cent in August 2020 from 3.9 per cent in August 2019, the RBI data showed.

Low demand has impacted the services sector as well as shown in the bank lending trend.Credit growth to the services sector decelerated to 8.6 percent in August 2020 from 13.3 per cent in August 2019. Within this sector, credit to ‘computer software’, ‘trade’ and ‘tourism, hotels & restaurants’ registered accelerated growth in August 2020 vis-à-vis the growth in the corresponding month of the previous year, the RBI data showed.

One needs to wait and watch whether the effect of rate cuts and liquidity measures so far translates into better credit growth going ahead. Without a strong demand revival on the ground, banks may remain highly risk averse to take further exposure to companies except top rated ones that are considered safe bets.