RBI SURVEYS 

1. Context 

2. Trade Deficit

• The trade data details what goods (only goods and not services) India imported and exported in July.
• It presents this in value terms (in Indian rupees or US dollars).
• In March this year the government celebrated India's exports breaching the $400 billion mark a record in the 2021-22 financial year.
• The government had asserted that this jump in exports was a result of "a detailed strategy" which targeted specific countries for specific exports and made the necessary "course correction".

• Here's what has happened in the four months since then.
• Barring April, in each of the last three months May, June and July India's trade deficit (that is, the excess of imports over exports) hit an all-time high in each passing month (See Chart 1).

• Many analysts now expect India's Current Account Deficit (CAD).
• The link between the trade deficit and CAD is to balloon from 1.2 per cent of GDP in 2021-22 to around 4 per cent of the GDP in 2022-23.
• This spike in the trade deficit has been one of the key reasons why the rupee has lost value against the US dollar (See Chart 3).

3. RBI Monetary Policy Review

• Since mid-May, when the Monetary Policy Committee (MPC) was forced to hike interest rates in an off-cycle meeting, the RBI has reprioritised its focus from boosting growth to containing inflation.
• Following in the same path, RBI raised the repo rate the interest rate at which it lends money to the banking system by 50 basis points (bps).
• Since May, repo rates have gone up by 140 bps (or 1.4 percentage points).

3.1 RBI expectation

• RBI expects inflation to be 6.7 per cent for the current financial year (April 2022 to March 2023), and most analysts expect another 50 bps hike in the repo rate in the year.
• At 5.4 per cent, already the repo rate is at the per-pandemic level.
• Another 50 basis points would take it close to 6 per cent.

3.2 Base Rate

• Since this is the base rate, expect borrowing rates of all kinds to go up by the same degree or more.
• Consumers will have to shell out more as EMIs for their home and car loans.
• Producers will have to pay more to borrow money for new investments.
• Understandably, these moves by the RBI will create a drag on India's economic recovery.

3.3 Inflation 

• But this is the most curious bit of the RBI policy, RBI still expects India to grow at 7.2 per cent in the current year.
• But this is the same GDP estimate that it had in April.
• At that time, RBI's inflation estimate for the current year was 4.5 per cent.
• Now, it expects inflation to be 6.7 per cent. 
• Moreover, since April, repo rates have gone up by 140 bps, with another 50 to 60 bps in the offing.

4. RBI's Surveys

• Speaking about the state of the Indian economy, the RBI also released the results of seven surveys that it conducts. 
• Each of these surveys throws light on some aspect or the other of the Indian Economy.

4.1 Consumer Confidence Survey (CCS)

• The CCS asks people across 19 cities about their current perceptions (Vis-a-vis a year ago) and one-year ahead expectations on the general economic situation, employment scenario, overall price situation and own income and spending.
• The latest round of the survey was conducted from July 07 to July 14, 2022, covering 6, 083 responses.

1. The Current Situation Index (CSI) and 
2. The Future Expectations Index (FEI).

• To read either index it is important to first understand that the value of 100 is the neutral level.
• An index below the 100 mark implies people are pessimistic and a value higher than 100 conveys optimism.
• As the CSS Chart shows, the CSI (red dotted line) has been recovering since falling to a historic low in July last year.
• However, despite the improvement, the CSI stays firmly in the negative territory suggesting consumer confidence is still considerably adrift from the neutral territory.

4.2 Inflation Expectations Survey (IES)

• It tracks people's expectations of inflation.
• The biggest worry during phases of rapid inflation is that if inflation is not controlled soon, it can lead to people getting into the habit of expecting high inflation
• Which in turn, alters people's economic behaviour.
• Often central bank heads can be found saying they want to prevent people's inflation expectations from becoming "unanchored".
• This survey provides an answer to whether that is happening in India or not.
• As the IES charts show, household inflation perception for the current period has moderated by 80 bps to 9.3 per cent in the latest survey round.
• Their three-month and one-year ahead median inflation expectations also declined by 50 bps and 60 bps, respectively, from the May 2022 round of the survey.
• The IES chart shows the three months and one-year ahead median inflation expectations.

4.3 OBICUS Survey

• OBICUS stands for "Order Books, Inventories and Capacity Utilisation Survey".
• This survey covered 765 manufacturing companies in an attempt to provide a snapshot of demand conditions in India's manufacturing sector from January to March 2022.
• The key variable here is Capacity Utilisation (CU) shown in the blue line in the OBICUS chart.
• A low level of CU implies that manufacturing firms can meet the existing demand without needing to boost production.
• That, in turn, has negative implications for job creation and the chances for private-sector investment in the economy.

4.4 Industrial Outlook Survey (IOS)

• Just like the CCS tries to suss out consumer confidence, this survey tries to track the sentiments of businessmen and businesswomen.
• The survey encapsulates a qualitative assessment of the business climate by Indian manufacturing companies for Q1: 2022-23 (April, May and June) and their expectations for Q2: 2022-23 (July, August and September).
• As the IOS chart shows, businesses were optimistic (above the 100 level) in Q 1, although not as much as they were in the recent past.
  But, they do expect things to improve as the months roll by.
• This tallies with the steadily improving capacity utilisation from the OBICUS.

The IOS chart shows the business expectations index from FY 16 to FY 23

4.5  Services and Infrastructure Outlook Survey (SIOS)

• Again, much like the CCS and IOS above, this survey does a qualitative assessment of how Indian companies in the services and infrastructure sectors view the current situation and prospects.
• This round of SIOS surveyed 758 companies on their assessment for Q1: 2022-23 and expectations for Q2: 2022-23.
• The questions were on parameters relating to demand conditions, price situations and other business conditions.
• As SIOS charts 1 and 2 show, the companies in the services space are far more optimistic than the companies in the infrastructure sector.

4.6 Bank Lending Survey (BLS)

• This survey captures the mood qualitative assessment and expectations of major scheduled commercial banks (SCBs) on credit parameters (Viz., loan demand and terms and conditions of loans) for major economic sectors.
• The BLS found that the banker's assessment of loan demand in Q1: 2022-23 remained positive for all major sectors though the sentiments were somewhat toned down from the level reported in the previous quarter.

The BLS found that the banker's assessment of loan demand in Q1: 2022-23 remained positive for all major sectors.

4.7 Survey of Professional Forecasters (SPF) 

• There is a survey of 42 professional forecasters (Outside the RBI) on key macroeconomic indicators such as GDP growth rate and inflation rate in the current year and the next financial year.
• India's real GDP is expected to grow by 7.1 per cent in 2022-23 projections revised down by 10 basis points from the last survey round and it is expected to grow by 6.3 per cent in 2023-24.
• As shown in the SPF chart, it is noteworthy that while the highest probability is that GDP growth will range between 7 -7.4 per cent, the second most probable outcome is that the growth rate will decrease to the 6.5 -6.9 per cent range.