Data | Indian manufacturers on recovery path, yet urban consumers lack confidence

The share of urban consumers pessimistic about the Indian economy continued to decline in September 2022 as COVID-19 cases continued to fall. But the share of those pessimistic about the economy was still double the share of those who were optimistic about it. This shows that there is a long road to complete recovery.

Chart 1 shows the responses from a Reserve Bank of India (RBI) survey conducted across 19 major cities between September 1 and 10. When asked about their current perception about the economic situation, 59.2% said it had worsened in September 2022. This was the lowest share since the pandemic outbreak, but it was still more than double the share of those who said the economic situation had improved (26.2%, and not plotted on the graph).

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Chart 1 also shows that 54% of respondents were pessimistic about their current employment scenario. Notably, since May 2022, the share has remained stagnant, pointing to muted recovery on the employment front in recent months. Consequently, the share of urban consumers worried about their income levels has also remained stagnant since May 2022.

Worryingly, close to 95% of the respondents said price levels of commodities had increased. This is not surprising given that retail inflation has remained high in India. So, while the degree of pessimism about the economy has declined, the rapid build-up in confidence about jobs and income levels has been arrested in the five months ending September. Add the high price levels to the mix and it paints a grim picture about the recovery of consumer confidence.

Chart 2 shows the growth in new orders received by manufacturing companies surveyed by the RBI. The survey covered 734 companies and provides a snapshot of demand conditions in India’s manufacturing sector. The latest data are for the April-June 2022 period. Data show that new orders increased for manufacturing firms in the last four quarters.

Chart 3 shows the results of the RBI survey that captures the growth in services and infrastructure sectors. The latest data are for the July-September 2022 period. Nearly 590 companies were asked to comment on whether their turnover had increased, decreased or stood still. The chart plots the net response — the difference between those who said it increased and those who said it decreased. So, a positive number points to a higher share of companies recording an increase in turnover and a negative number points to the opposite.

Chart 3 hints at a possible recovery in the turnovers of both the service and infrastructure sectors. In the latest period, 51.2% of service sector companies reported that their turnovers had increased, 40.3% reported that there was no change and only 8.5% said their turnovers had decreased. The net response was +42.7% points. This is higher than the pre-pandemic levels. However, the trend has to be read with caution given the base effect at play due to very low levels of positive responses during the pandemic period. A similarly positive net response was also reported by the infrastructure firms.

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Chart 4 plots the results of the RBI’s quarterly bank lending survey. Senior loan officers were asked to assess loan demand in this survey. The latest data are for the July-September 2022 period. Chart 4 too plots the net response. Every sector, led by the retail segment, recorded an increase in loan demand in the latest quarter.

This means that the manufacturing, service and infrastructure sectors are firmly on the recovery path with the demand for loans continuing to grow.

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Source: RBI survey reports

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