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RBI WATCH

Indicators poles apart on economy

Cogencis, Tuesday, Apr 30

By Siddharth Upasani

The future is bright for the Indian economy. In fact, as far as consumers are concerned, the future has never been brighter. Manufacturers too are optimistic.

This is what the Reserve Bank of India's consumer confidence and industrial outlook surveys say. As per the former survey, the future expectations index hit a record high of 133.4 in March. And while the Business Expectations Index edged down to 113.5 in Apr-Jun from a four-year high of 116.2 the previous quarter, according to the industrial outlook survey, it remained well above 100, which is the threshold separating expansion from contraction.

Even private measures of sentiment broadly support this finding. The Nikkei Purchasing Managers' Index for manufacturing has averaged 53.6 in Jan-Mar, slightly higher than Oct-Dec's 53.4. Of course, the services PMI has cooled to 52.2 from 53.0.

Another indicator, albeit one derived from a survey of 909 manufacturing companies, showed that capacity utilisation rose above the long-term average to 75.9% in Oct-Dec from 74.8% the previous quarter. Even the seasonally adjusted number was higher at to 76.1% in Oct-Dec from 75.4%.

While these measures tell us that India is in for a great time in the next few quarters, they find no backing from official data. GDP growth, as we know, hit a six-quarter low of 6.6% in Oct-Dec. Core sector growth averaged a meagre 2.8% in Jan-Mar, while industrial growth veritably crawled at 1.4% during Dec-Feb.

Policymakers are expected to consider all available indicators while making decisions, be they leading, lagging, or coincident. However, the tremendous amount of divergence between them makes any sort of reconciliation well nigh impossible. It is not surprising, then, to see members of the Monetary Policy Committee dividend on the growth situation.

Chetan Ghate sees "'early cycle' weakness" and not an "economy in collapse", while Pami Dua sees evidence of "improved growth outlook", although the overall picture seems "mixed". Ravindra Dholakia is far more pessimistic, and is of the opinion that there are "serious concerns" which warrant a "sustained boost" to the economy.

Among the RBI representatives, Executive Director Michael Patra thinks "drivers of growth are fading" and capacity utilisation running above the trend in the absence of investment in new capacity suggested it would be difficult to maintain the current rate of growth if the capital expenditure did not start soon. At the same time, Deputy Governor Viral Acharya was enthused by the improvement in capacity utilisation as it was likely to result in future investments. Governor Shaktikanta Das mentioned all the relevant numbers and decided it was "necessary to address the challenges to sustained growth".

It is at this point that a few sagacious words are offered. But there are none, except 'good luck'.

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POLICY RATES
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Repo Rate: 6.00%
Reverse Repo Rate: 5.75%
Cash Reserve Ratio: 4.00%
Bank Rate: 6.25%
Marginal Standing Facility Rate: 6.25%
Statutory Liquidity Ratio: 19.00%

Edited by Arshad Hussain

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