India's Companies Aren't As Optimistic as Its Central Bank

(Bloomberg) -- India's central bank appears optimistic about economic growth prospects, expecting demand and investment to underpin a recovery this year. The nation's companies aren't so sure.

A survey of 1,250 manufacturing firms conducted by the Reserve Bank of India shows they're no longer so confident of an upturn in domestic demand. The companies' outlook for the first quarter of the fiscal year ending March 2019 worsened across all indicators barring exports and imports, the survey found.

It's not just businesses: Consumer confidence is also flagging, a challenge for those firms pinning their hopes on consumption picking up. Demand has been hit in Asia's third-largest economy due to the cash ban in 2016 and the chaotic implementation of the goods and services tax last year. While there are some signs demand is picking up, it's not enough to fuel wide-spread optimism.

Bloomberg Economics' Abhishek Gupta says the RBI's growth projections have proven to be optimistic in the past and history may be repeating itself.

In April last year, the central bank “projected 7.4 percent growth in gross value added in fiscal 2018, but actual growth is likely to be just 6.4 percent,” he said. “Looking ahead, we continue to see high real interest rates in fiscal 2019 as a big downside risk to a revival in aggregate demand.”

Companies were also less optimistic on the availability of finance for the first quarter of the fiscal year, the RBI survey showed. Furthermore, rising input prices of raw materials and the cost of capital, along with sluggish demand conditions, have them expecting lower profit margins in the period.

"There is a risk to the RBI's growth projections," said Indranil Pan, chief economist at IDFC Bank Ltd., who expects the economy to grow at 7.1 percent in fiscal 2019 -- below the central bank's forecast of 7.4 percent. “There are risks to consumption from higher interest rates and rising prices."

To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke

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