The economic mosaic

Source: The post is based on the article “The economic mosaic” published in Business Standard on 14^th October 2023.

Syllabus: GS 3 – Indian Economy – Growth & Development

Relevance: Findings of the RBI survey on key economic sector

News: The RBI has recently conducted a survey of consumer and business opinions, offering insights beyond just growth and inflation figures.

What are the key findings of the survey?

Manufacturing Sector: The manufacturing sector lags the rest of the economy, and there’s no evidence of it growing faster. Capacity utilization in manufacturing is stuck in the low 70s, indicating a lack of investment in new manufacturing capacity that could boost economic growth.

Further, new orders for manufacturers have dropped significantly, with growth falling from 40% to almost zero in the past four quarters. However, despite this, the business expectations index is at its highest level since 2015-16.

Inflation: Consumer surveys show that people are still not very optimistic about the economy. Inflation is a major concern, with more than 80% saying that prices are rising faster.

Further, consumers are spending more on essentials and less on non-essentials. However, many people still remain hopeful about the future.

Employment: Employment has improved mainly due to more self-employed people, as the number of salaried jobs has dropped.

This indicates that those who can’t find regular or even part-time jobs are forced to become self-employed. If this is the case, then the improvement in employment numbers may be misleading.

Banking Sector: Bank lending has increased, with the most significant growth in retail and personal loans.

This may be because businesses have enough cash and don’t require loans, while consumers are confident about their future income and are borrowing to buy things like cars and houses.

However, the RBI has warned that this skewed lending pattern could be risky, as household debt is rising.

What is the way ahead?

The economy is moving forward at a steady growth rate of over 6%, which is positive when considering the global situation. However, there are no signs of rapid growth in the near future.