Fair Winds but Slow Pick up

  • On a day when official data showed further weakening of the industrial sector, Reserve Bank Governor Raghuram Rajan said that the Indian economy was expected to weaken further and a recovery was likely only beyond December.
  • He cautioned that despite the sharp surge in sentiment in the economy, captured by consumer and investor confidence surveys, including by the Reserve Bank, a pick-up in investments would take time.
  • There is volatility around the general trend.
  • Investment is yet to pick up on a strong basis, though we are seeing signs of the coming together of conditions for it [including a stable government that has signalled pro-investments initiatives] ... there will be slight weakening compared with the first quarter in the second and third quarters.
  • Official data released in New Delhi on Thursday showed factory output growth slowed further to 0.4 per cent in August, marginally lower than the 0.5 per cent in July.
  • Manufacturing growth shrunk further by (-)1.4 per cent compared to (-)1.1 per cent in July.
  • Capital goods production slid sharply by (-)11.3 per cent against (-)3.8 per cent reflecting an absence of investment activities.
  • Even with all the sentiment in the world, it takes time for investment intentions to pick up and investors to put the assets on the ground. Consumer demand can quickly pick up but it is affected by new jobs.
  • In its Monetary Policy Report released on September 30, the Reserve Bank had said that consumer expectations were at the highest level since the financial crisis in 2008 and business expectations were at an 11-quarter high. It, however, said that its own expectations of conditions conducive to revival in investments, fiscal consolidation and sustained disinflation remained broadly unchanged from the pre-election level