Election results impact sentiment negatively

BJP supporters celebrate
Consumer sentiment fell for a third consecutive week ended March 12, reaching a new low of 88.73. Sentiment has been weak and consumer expectations have steadily worsened in recent weeks. However, this weak trend worsened immediately following the election results of March 11.

I expect consumer sentiments indices to react almost always negatively to almost any election result.

Election results in India almost always disappoint the greater electorate. Let those exuberant, colourful and noisy displayers of victory on TV not mislead you. It's a party of the victors, and almost never of the electorate at large. This is not a criticism of the merriment, the results or India's electoral system but a mere statement of fact. BJP won 77 per cent of the seats in UP with a 40 per cent share of votes. This implies that 60 per cent of the voters did not choose BJP. So, when the BJP won, 60 per cent of the voters should be disappointed. If the Congress forms a government in Goa, it will be based on a mere 28 per cent of the vote share, leaving over 70 per cent of the electorate disappointed. Interestingly, if the BJP manages to form the government, it will leave a little less than 70 per cent of the electorate disappointed.

Voters do shift loyalties towards winners. Not many like to say they voted for a loser. Yet, given the large gap between the winner's share of votes and that of the rest, majority of the electorate would likely remain unhappy with the final outcome. Thus, any election-results day should show a drop in the average voter's happiness with the final outcome.

If we assume people know this, then it is remarkable that they vote in larger numbers in every election. This increasing participation shows the greater stake that people have in the democratic system. This stake, I assert, is about economic well-being. People vote in greater numbers because they believe that their economic well-being is associated with the political party of their choice being the victor and that the competitive forces that deliver victory are very large. Although the chances of being unhappy with the election results are higher than of being happy, the economic benefits are high enough to make voters throng electoral booths to beat the odds.

It is the association of political happiness with economic well-being that makes the consumer sentiments index (which is an assessment of current and of expected economic well-being) sensitive to election results. And, it is in the nature of our electoral system that the sentiments should always be expected to be negative following election results.

On 11 and 12 March, 346 households were surveyed by CMIE's Consumer Pyramids Household Survey in five states whose election results were declared on March 11. We analyse their response to two questions -- 'Compared to a year ago, how is your family faring financially these days -- same, better or worse?' and 'Do you think that a year from now your family will be faring financially same, better or worse?' The first question anchors relative well-being over the past one year and the second elicits an expectation about the future.

Nearly 20 per cent respondents in the five election states stated that their financial conditions had improved over the past one year, but only 15 per cent stated that they expected their conditions to improve in the coming year. Nearly 28 per cent of the respondents stated that their financial conditions had worsened during the past one year, but over 30 per cent expected their conditions to worsen in the coming year. And 53 per cent did not experience any change in well-being in the past one year while 55 per cent do not expect any change in the coming year. These results conform our expectations.

Did these results impact sentiments in the country as a whole? Preliminary results would suggest so. The all-India consumer expectations fell sharply on March 12 (by 19 per cent) compared to the mild 0.6 per cent fall on March 11. It is possible that in spite of the clear lead taken by BJP in Uttar Pradesh and Uttarakhand, the idea of the landslide victory had not sunk in entirely during March 11. The full impact of the results and the new government formations would show in the consumer sentiment indices in the coming week.

Consumer sentiment declining

Sentiment gauge

Unemployment also up

Unemployment gauge

Business Standard brings you CMIE’s Consumer Sentiments Index and Unemployment Rate, the only weekly estimates of such data. The sample size is bigger than that surveyed by the National Sample Survey Organisation. To read earlier reports on the weekly numbers, click on the dates:

November 21November 28December 4,

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.

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