Capacity utilisation across Indian industry remained weak in the fourth quarter of fiscal 2017, suggesting that any impact of lower rates on investment may be limited. Data released by the Reserve Bank of India (RBI) on Wednesday showed that capacity utilisation showed some seasonal pick up in the January-March quarter but not on a seasonally adjusted basis.
At an aggregate level, capacity utilisation stood at 74.1 percent at the end of the March quarter, the data showed.
The monetary policy committee (MPC) reduced interest rates for the first time in ten months, bringing the benchmark repo rate down to 6 percent. The rate cut, which came in response to softer-than-expected inflation, may do little to revive private investment in the economy due to weak capacity utilisation.
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Consumer Confidence Slips
The rate action, however, may be justified given a drop in consumer confidence and inflation expectations that remain below levels seen last year.
A forward looking survey conducted by the RBI show that the ‘Current Situation Index' in the Consumer Confidence Survey dipped into the ‘pessimistic zone'. A decline in sentiment was seen across all parameters including income, price levels and employment.
The ‘Future Expectations Index' also dipped to 120.8 from 123.4 in the May 2017, showed the survey.
Inflation Expectations Modest
A survey on household inflation expectations threw up a slight increase in expectations compared to the previous two rounds.
Around half of the respondents who expected the general price level to increase in the next three months also felt that prices would rise by more than the current rate; this proportion has also increased marginally over the May 2017 round of the survey.RBI Inflation Expectations Survey
The survey added that while a higher proportion of respondents expect general prices to increase over the year ahead, the proportion of respondents who expect general prices to rise at more than current rate was lower than in the May 2017 round.
Median inflation expectations have also held stable and remain well below the levels seen last year.
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