RBI Surveys Predict Optimistic Business Situation and Strong Credit Demand in FY24

It is anticipated that the country’s business environment will see a positive shift in FY24, driven by the revival of the services and infrastructure sectors. It is based on a set of surveys conducted by the RBI among economists and corporate entities.  The demand for bank credit is also projected to remain stable during this period. The surveys indicate that many respondents in the services and infrastructure sectors are optimistic about their financial prospects in FY24, citing favorable employment conditions and a surge in demand as the primary drivers of growth.

Although there may be some pressure on input costs and selling prices in the short run, the pace of expansion is predicted to remain steady. This is because an increase in demand is expected to result in higher selling prices, which will help to maintain profit margins. While the pace of growth may be slightly slower in the near term, the sustained demand is likely to play a significant role in supporting profit margins.

Also Read: Jan Dhan Scheme Witnesses Record Growth in Total Balance During FY23

In contrast, manufacturers were not as positive about the demand for their goods and services. Their expectations for production, order books, capacity utilization, and foreign trade were lower. Additionally, respondents indicated that cost pressures related to financing, raw material procurement, and wages are likely to persist in the near future. A significant proportion of the manufacturers surveyed anticipated no change in their selling prices and profit margins.

Despite the Business Expectations Index (BEI) normalizing to 126.4 in Q1 FY24 from 132.9 in the previous quarter, the index remained positive, indicating an overall expectation that the business situation would continue to improve in FY24.

Furthermore, the bankers are optimistic about the demand for loans in FY24 across all major borrower categories. They anticipate that loan terms and conditions will remain favorable, which will support continued borrowing activity.

According to the survey, merchandise exports are forecasted to increase by 4.1% and imports by 16% in FY23, but decrease by 2.3% and 3.8% in FY24, respectively. The respondents also estimated that the current account deficit (CAD) would be 2.6% of GDP for FY23 and 2.0% for FY24.

Although consumer sentiment was slightly less optimistic, it remained positive overall. According to the survey, more than half of the respondents expected the employment scenario to improve in FY24, which is close to the levels observed in mid-2019.

Also Read: Delhi Set to Say Goodbye to Petrol and Diesel Cabs with New Aggregator Policy

Households have become more confident about economic conditions, as indicated by their assessment of inflation. While expectations regarding general prices remained high, fewer households anticipated an increase in prices compared to the previous survey. Additionally, over one-third of households anticipated an increase in non-essential spending during the current financial year.

Economists predict that CPI inflation will be 6.7% in FY23 and 5.3% in FY24. The GDP forecast for FY23 has been revised upward by 10 basis points to 7%.

In FY24, the annual growth in real private final consumption expenditure (PFCE) is expected to be 6.1%, while the growth for real gross fixed capital formation (GFCF) is projected to be 7.1%. The real gross value added (GVA) growth projection remains unchanged at 5.8%.