Has demonetisation improved sentiment and employment?

People queue up outside a bank to exchange their old Rs 500 and 1000 notes
Consumer sentiment fell a tad and unemployment rose a bit during the week ended November 20. Although both indices moved in complementary directions, the movement itself was small in both cases. Apparently, not much has changed over the past week. But, if the Prime Minister's announcement of demonetisation on November 8 is a recent watershed, then both, consumer sentiments and unemployment, look somewhat better than they looked just before the announcement.


The consumer sentiment index fell 0.18 per cent from 98.77 in the week ended November 13 to 98.59 in the week ended November 20. This is a very average movement in the index. The average movement in the weekly consumer sentiment index is 20 basis points.


In general, the sentiment has fallen since the Diwali week. the sentiment fell in three of the four weeks since the festive week. However, they had risen sharply during the week of the Prime Minister's announcement of the demonetisation move. Only a small part of that gain was lost in the past week.


The unemployment rate rose to 6.48 per cent in the week ended November 20 from 6.15 per cent in the preceding week. The unemployment rate began a downtrend from the middle of August this year, when it had crossed 10 per cent. Onset of the busy period of the kharif crop and then the festive season seem to have brought the unemployment rate down quite significantly. During the Diwali week, unemployment reached its recent low of 5.3 per cent.


Once the festive season was over, unemployment did rise. However, during the week of announcement of the demonetisation move, unemployment fell quite significantly -- from 7.4 per cent to 6.2 per cent. This is in contrast to the grim pictures of empty mandis and thin footfalls at malls and other markets that captured our attention soon after the announcement.


It is interesting that sucking out of liquidity from the system did not cause the kind of movement in indices that the anecdotal evidences had suggested. The indices have not moved sharply either way. They don't suggest as great support to the bold move of the Prime Minister as the ruling party would like us to believe. At the same time, they do not suggest great distress, either, as the serpentine queues and stalled businesses tell us.


It would be ironical if it were to be true that standing in queues has became a new form of temporary employment. A daily wage earner does not care much if the job of the day is to stand in a queue to change a few currency notes for someone. It could even make him happy if he were made to believe that this was good for the country as it would eradicate corruption. I don't believe that such a scenario is implausible. For now, that is the only way to square the empty mandis with the improved sentiment and improved employment situation.


If the irony is true, it would at best be a temporary phenomenon. We need to watch the indices in the coming weeks to see how the saga unfolds itself.


Sentiment gauge


Unemployment gauge 


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.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel