Farmers' optimism pushing up consumer sentiment

The consumer sentiments index has risen sharply during November. It is likely that the index would end up being about 6 per cent higher than its level in October. This would be a substantial jump during a month because ever since the index was launched in January 2016, it increased by more than 3 per cent during a month only once. The average monthly increase in the index has been negative. The mean monthly change in the index has been -0.32 per cent and the median, -0.53 per cent. The increase in the consumer sentiment index during November is therefore extraordinary.

It is also a very strong correction to the sustained weak performance of the index in the past six consecutive months. Between May and October 2017, the index has either stagnated or declined during a month. It fell in four of the past six months.

The consumer sentiments index for the week ended November 26 was 6.4 per cent higher than it was four weeks ago in the week ended October 29.

Something has changed substantially in consumer sentiments during November 2017.

Both the constituent indices — current economic conditions and consumer expectations — have risen smartly during November.

An explanation of this impressive increase in consumer sentiments is in the rural-urban break-up of the index. Rural India has seen a sharp increase in consumer sentiments recently.

Consumer sentiments had seen a recent low in the week ended October 22. The urban index was at its all-time low and the rural index was also close to its all-time low. Since then, both indices have recovered. The urban index recovered by nearly 4 per cent and the rural index recovered by a whopping 11 per cent.

What could have caused this sudden increase in rural consumer sentiments? The farming community has not done too well this year and it is unlikely that they would do well in the coming season either. This is borne by the fact that during kharif 2017, foodgrain output was down by 2.8 per cent and major oilseeds production was down by 7.7 per cent. Further, the first four weeks of rabi sowings ended November 24, 2017, shows a 6.7 per cent fall.

Agricultural output had seen a good growth in 2016-17. Foodgrain production had grown by nearly 10 per cent while major oilseeds production had grown by nearly 27 per cent. Although part of this output was reportedly destroyed by deliberate action and the gains were partly offset by a crash in prices of select commodities following demonetisation, it was still a significant positive growth after two years of decline.

In comparison, 2017-18 does not look like a good year for farmers.

And neither have the terms of trade tilted significantly in favour of rural India. The CPI grew 2.76 per cent for urban India and 2.71 per cent for rural India.

So, what are the rural folks rejoicing? My guess is it is hopes on their collective action to politically assert their demands of entitlement.

According to media reports more than 60,000 farmers from 184 organisations from 25 states gathered in Delhi under the banner of All India Kisan Sangharsh Coordination Committee on November 20 and 21. They demanded nationwide waiver of loans and an assurance of fair prices for their produce.

The farmers look forward to two bills to the effect to be tabled in the Lok Sabha during its winter session. Farmer organisations are also planning more demonstrations — a campaign was set to begin on November 26 from Bardoli in the election-bound state of Gujarat.

Farmer protests have now become a regular feature across the country. In October this year, sugarcane farmers in Maharashtra protested for fair and remunerative price and farmers in Uttar Pradesh burnt their crops outside the state Assembly in protest against the “paltry” Rs 10 hike in sugar cane prices.

We don’t hear much of industrial labour unrest nowadays. A few that are reported are also reported to be dealt with firmly — like in Gurgaon’s automobile belt. But farmer protests and caste protests have been seeing traction. Both seek entitlements such as reserved jobs or assured profits or free money (that’s what a loan waiver is) from the political system.

It seems that many of these do succeed. Many states did waive farmer loans and also assured better prices for farm produce. Perhaps, farmers have understood that collective political pressure does yield results. This explains the rise in their sentiments. As thousands of farmers assembled in Delhi for protests, their families back home raised their expectations and also believed that their protests would improve their lot substantially.

The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd

 

Methodology

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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