Consumer sentiments improve in July

The Indian economy seems to have recovered much faster from the second Covid-19 shock that struck India around April-May 2021 than it did from the first one about a year ago. Elect­ri­city generation and consumption did not fall much during April and May 2021 unlike in April 2020 and they displayed a smart spurt during July 2021. Labour participation recovered in July 2021 to its March 2021 level. The unemployment level was slightly elevated co­m­pared to the March 2021 level of 6.5 per cent but it has de­c­lined well to 7 per cent in July 2021 from 11.9 per cent re­.....
The Indian economy seems to have recovered much faster from the second Covid-19 shock that struck India around April-May 2021 than it did from the first one about a year ago. Elect­ri­city generation and consumption did not fall much during April and May 2021 unlike in April 2020 and they displayed a smart spurt during July 2021. Labour participation recovered in July 2021 to its March 2021 level. The unemployment level was slightly elevated co­m­pared to the March 2021 level of 6.5 per cent but it has de­c­lined well to 7 per cent in July 2021 from 11.9 per cent re­cor­ded in May 2021. The No­m­ura Business Resum­ption Index had fallen from about 94 in March 2021 to about 60 by the end of May. By July 25, 2021 it had surpassed its March level.

Consumer sentiments che­er­ed in tandem. The index of consumer sentiments recovered much of the fall triggered by the second wave in a single month, July 2021. During the second Covid-19 wave, bet­w­een March and June 2021, consumer sentiments fell by 15.4 per cent. In July 2021, sentim­ents improved quickly and smartly by 10.7 per cent. The recovery is still incomplete but the progress in a single month is impressive.

This quick recovery is interesting because consumer sentiments were the most sluggish in terms of recovery from the 2020 Covid shock.

Households were not imp­ressed by the smart V-shaped turnaround of most economic indicators during the first wave. Between March and June 2020, sentiments had fallen by a massive 55 per cent. It took nine months between June 2020 and March 2021 for sentiments to recover by only 30 per cent. Therefore, at the cusp of the second Covid wave, consumer sentiments were still 41.6 per cent lower than they were before the first wave, in March 2020. RBI’s Consumer Confidence Survey tells us a similar story. Its current situation index of households in March 2021 was 38 per cent lower than it was in March 2020. The second wave stalled even this snail-paced recovery for a good three months.

The July 2021 recovery in consumer sentiments is not only substantial but it is also spread evenly and robustly ac­r­oss rural and urban regions. It reflects an improvement in current conditions as well as an improvement in percept­i­ons regarding the future. The imp­rovement in consumer sen­tim­ents also reflects an improvement in almost all components of consumer sentiments.

Consumer sentiments im­p­r­oved by a handsome 12 per cent in urban India and by 11 per cent in rural India. Both regions reported robust increases in current economic conditions. This indicates an improvement on two fronts — in perceptions regarding current household income compared to a year ago and also about intentions to buy consumer durables.

While there is an improvement on both fronts, the prevailing absolute levels are still quite dismal. Only 6 per cent of urban households reported an improvement in their income compared to a year ago in July 2021. In June, the proportion was just 4 per cent. Si­m­ilarly, only 4 per cent of urban hou­seholds said that it was a better time to buy consumer durables in July co­mpared to just 2 per cent in June.

In rural India these proportions are even lower. Only 4.5 per cent households claim an increase in income over a year and only 2.7 per cent think this is a good time to buy consumer durables.

Evidently, the increase in proportion of households ref­lecting improved income conditions in July 2021 is not good enough to instil confidence in a sustained recovery of household wellbeing. Households themselves demonstrate reticence. While the index of current economic conditions expanded by 13.7 per cent, the index of consumer expectations grew by a lower 9.2 per cent. These growth rates of the indices are of limited use because of the low base. Some of the constituents of the indices are more revealing of a restraint. For example, the proportion of urban households that expect their incomes to grow in a year declined from 5 per cent in June to 4 per cent in July 2021. The future appears promising to fewer urbanites. More than half of them believe that their incomes would remain the same a year ahead. We know from RBI surveys that median inflation expectations one year ahead are of the order of 11 per cent. Therefore, most urban households expect an erosion of their real incomes over the next 12 months. This can be expected to have an impact on the spending propensities of households. An improvement in current incomes has not hel­ped improve future expectat­i­ons. Fewer urban households believe that their incomes wo­uld improve in a year compared to those who have experienced an improvement over the past year. The underlying pessimism that these statistics portray of urban households is the millstone that holds back a strong economic recovery in India.

 
The proportion of rural hou­s­eholds that expect the overall economic conditions to imp­r­ove over the next five years dec­lined marginally from 5.4 per cent in June to 5 per cent in July.

The overall consumer sentiment index in July at 53 was still 50 per cent lower than its level of 105.3 in February 2020, i.e. before Covid-19 started impacting household sentiments. It is a long way before consumer sentiments recover completely.

 
/> The writer is MD & CEO, CMIE P Ltd



Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel
Key stories on business-standard.com are available to premium subscribers only.

Already a premium subscriber?

Subscribe to get an across device (Website, Mobile Web, Iphone, Ipad, and Android Phone applications) access to Premium content, Breaking News alerts, Industry Newsletters, Stock and Corporate news alerts, access to Archives and a lot more.

Read More on

CONSUMER SENTIMENT INDICATOR

INDIAN ECONOMY

CMIE DATA

BS OPINION

CONSUMER SENTIMENT

EMPLOYMENT IN INDIA

UNEMPLOYMENT IN INDIA

OPINION

COLUMNS


Most Read

Markets

Companies

Opinion

Latest News

Todays Paper

News you can use