Seasonally Adjusted Capacity Utilisation Declined In January-March Period

Slowing consumption demand led to a drop in seasonally adjusted capacity utilisation in the January-March 2019 period, showed data released by the Reserve Bank of India on Wednesday.

The ‘Order Books, Inventories and Capacity Utilisation Survey’ found that capacity utilisation rose by 0.2 percentage points to 76.1 percent in the fourth quarter of FY19. However, seasonally adjusted capacity utilisation declined by 1.1 percentage points to 74.5 percent, the survey showed.

Capacity utilisation had started to rise due to a pick-up in demand and a lack of fresh investments. However, the last two quarters have seen growth slow with multiple indicators suggesting a slowdown in consumer demand. Auto companies, in particular, have started to cut back on production in response to these weakening demand conditions.

The pace of new orders declined compared to a quarter ago, the RBI said. However, order books increased on a year-on-year basis due to a favourable base effect.

Two other important indicators included in the survey also reflected a decline in end demand.

The ratio of finished goods inventory to sales rose as did the ratio of raw material inventory to sales.

Consumer Confidence Falls

A separate survey of consumer confidence in the economy reflecting weakening sentiment across a number of key categories.

After showing a substantial rise in March and a modest one in May, consumer confidence once again slipped into negative territory, according to the RBI’s consumer confidence survey for July 2019. To be sure, the difference between consumers who felt that the general economic conditions had improved, and those who felt it had worsened, remained narrow.

Though more than half of all respondents expect an improvement in the economic scenario one year on, the net positive response is still the lowest since December 2018. The change in consumer sentiment to negative, was led by deterioration perception of employment and income.

Inflation Expectations Stable

Inflation expectations of households have largely remained unchanged from those in May 2019, according to the July round of the Inflation Expectations Survey of Households. In its monetary policy review on Wednesday, the central bank said that while inflation expectations remained unchanged for the three-month ago period, they moderated by 20 basis points for the one year ahead horizon.

The Monetary Policy Committee cut rates by 35 basis points to 5.4 percent, citing weakening growth and subdued inflation. Policy rates have now been cut by 110 basis points in 2019.