I was just reading a report that India’s capacity utilization is sharply higher? Is that a good signal?

As per the latest data put out by the RBI forward looking surveys, there has been a perceptible shift in capacity utilization upwards and that is a very good sign. The RBI OBICUS survey pointed out that in the Dec-21 quarter, capacity utilization of Indian manufacturing companies increased sequentially from 68.3% to 72.4%. Let me tell you why this is a good signal. It shows that the same available capacity is used to manufacture more. Higher capacity utilization is considered to be an important efficiency barometer.

However, if you look at the RBI OBICUS report, it is not just about capacity utilization but also about other positive manufacturing signals too. In Q3, most manufacturing companies received more orders from their customers. This signals that economic output is finally getting back to pre-COVID levels. When higher capacity utilization is backed by higher order flows and lower backlogs, it shows increased economic confidence. This is also evident from the higher ratio of finished goods inventory to sales showing order flow expectatoins.