RBI Surveys

On the day of the monetary policy meeting of the Reserve Bank of India on 29th September, RBI also released its forward-looking surveys. They were mostly bad news for the economy. Inflation expectations have surged ahead. This was the 41st survey. Households surveyed on inflation think that the current inflation rate was 10.6%. That was the mean estimate. Median was 9.9%. Three months ago, the numbers were 10.0% and 9.5% respectively. Mean and median 3-month ahead inflation expectations were 10.7% and 10.5% (10.1% and 10.1% respectively in June 2015) respectively. One-year ahead mean and median inflation expectations were 11.1% and 10.8% (10.8% and 10.3% in June 2015) respectively. The ‘tight’ monetary policy, hitherto, had done little to stabilise inflation expectations. In developing economies, looks like central banks can easily run reckless monetary policy and let inflation loose but putting the genie back into the bottle is not that easy; it may take a long time, if at all, and hence it may be very costly. Tough to conduct monetary policy in such a situation.

Pundits would see that inflation expectations have not declined and might wonder what the point about tight monetary policy was. But, who knows, without it, inflation expectations might have been worse. The impossibility of counterfactual scenarios is what makes economic policymaking so tricky. Luck plays a factor. Hence, big need for humility – on the part of pundits and policymakers.

The 71st round of the Industrial Outlook Survey too had bad news. Business Expectations Index (Assessment for the Current Quarter) dropped from 104.8 to 102.4. Expectations for the next quarter inched up. There are eighteen tables in this survey. From production to inventory to profits to employment to capacity utilisation, most of them do not tell a good story. If anything, the story appeared to look better in the third and the quarters of 2014-15 (October – December).

Funny that the response on selling price has fallen into negative territory. More (proportion) expect prices to drop than rise currently and the proportion of net positive response for the next quarter too has fallen. Wonder if there is any correlation between Table 14 and household inflation expectations for 3-months ahead. Of course, households could be taking their cues from onions and tomatoes while this is the survey of manufacturing companies.

The Consumer Confidence Survey (No. not given) too has multiple tables. The most depressing one pertains to the table (Table No. 6) on employment expectations. It dropped to -1.4. It was around 10 in December 2015.

The 30th round of Survey on Order Books, Inventories and Capacity Utilisation showed that the ratio of inventory of  finished goods to sales is rising. Voluntary or involuntary?

Overall, the surveys do not paint a very cheerful picture of the Indian economy.


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