Indian companies remain diffident about investments

Long-term foreign investors are showing strong faith in the Indian economy – as evident from the record high in FDI inflows achieved in 2015-16. However, Indian companies are still quite diffident. Not only do business loans’ offtake domestically continue to remain quite tepid, Indian companies foreign borrowings are becoming increasingly disappointing as well.

External borrowings, defined as external commercial borrowings plus foreign currency convertible bonds, came in at USD 0.3bn in April 2016, down by 58% from the USD 0.7bn levels witnessed in April 2015. The monthly number tends to be a volatile one, with a range of USD 0.3bn to USD 7bn seen in the same over the past 7 years.

To circumvent this, a 6 month moving average (6mma) offers a better perspective on the overall direction of foreign borrowings. Here too, the trend is firmly downwards: at USD 1.8bn, the number is the lowest in five and a half years. It was lower only in September 2010, at USD 1.7bn.

This ties in with the capacity utilization numbers in industry, which can certainly show improvement as well as uncertainty around consumer demand. We at Orbis Economics have developed a composite measure of Consumer Conditions, which informs us how Indians are faring in their role as consumers. The measure stands at a value of 103.1 for March, 2016, the period for which we have the latest numbers.

Any value above 100 indicates that consumers are better off than they were during the past 12 months and a value below 100 indicates that they are worse off than they have been over the past one year. The good news is, that at a value of 103.1, consumers are better off than they have been over the past 12 months. However, the measure is slightly down from the corresponding period of the previous year. In March 2015, it stood at 106.9 and even in March 2014 the value was at 104.1. In sum, therefore, the Consumer Conditions measure indicates, that while at the end of 2015-16, the average Indian consumer saw improving conditions, compared to the rest of the year, the conditions themselves are not as good as they were at the same time in 2015 or in 2014.

There are of course a number of indicators that suggest that suggest that 2016-17 will be a strong year for the economy, particularly given a strong monsoon, it remains to be seen whether Indian companies are convinced of a sustainable recovery in demand yet.