Indian consumer sentiment at five-year low

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Recent government initiatives to power higher spending is yet to work

Mumbai (Bloomberg): Consumer sentiment in India worsened to an almost five-year low and manufacturing slack at companies widened to the most on record, indicating Asia’s third-largest economy is yet to put a floor under growth.

The “current situation index” fell to 83.7 in January, the lowest since March 2015, according to the Reserve Bank of India’s consumer confidence survey, where 100 is the dividing line between pessimism and optimism. Another survey showed capacity utilization at companies dropped to 69.1 per cet in the second quarter of the year ending March – the lowest since the RBI started tracking it in 2009 – mirroring subdued demand conditions.

Holding on to cash

“Current perception on the general economic situation, price levels and household income remained weak when compared with the position a year ago,” the central bank said in the survey that covered 13 major cities. Households reported lower spending on non-essential items.

As consumers reduced spending, companies too cut back on production. Capacity utilization fell from 73.6 per cent in the April-June period, according to a separate central bank report that covers the manufacturing sector and surveyed 866 companies.

The sustained drop means the output gap is widening – the difference between actual and potential production – and will push policymakers to keep rates lower for longer. On Thursday, the RBI kept benchmark rates at a decade-low of 5.15 per cent and resorted to more unconventional tools to bring borrowing costs down and boost demand in an economy on course for its weakest expansion since 2009.

The economy is set to expand 5 per cent in the year-to-March, the weakest pace since 2009.