Most post-demonetisation sentiment gains now lost

Fast-moving consumer goods (FMCG) companies reported a sharp fall in sales during November. Products purchased impulsively, such as biscuits and salty snacks, were reported to have seen a 35 per cent fall, and soaps and shampoos saw about a 25 per cent fall. Packet tea experienced a similar fall in sales. Lack of sufficient cash in rural India was the chief reason for this sharp drop in offtake. Companies have slashed marketing budgets and postponed new launches.


The Indian consumer has clearly curtailed consumption in line with available cash – without complaining too much about it. This lack of complaint contains the greatest threat to the future growth of FMCG companies. The Indian consumer could easily settle for less consumption of goods that are purchased impulsively. The lower level of consumption could become the new norm if the lack of cash continues for much longer.


Simple arithmetic requires a 33 per cent increase to cover a 25 per cent fall. A 33 per cent increase in top line is not easy during a period when the availability of cash is curtailed, confidence in the flow of cash is impaired, jobs are vulnerable and investments still continue to get stalled. It is clear that liquidity will not be restored by the end of December.


The demand squeeze caused by demonetisation will continue well into the fourth quarter. Part of this fall in demand could become structural and it would take companies substantial effort to raise demand again. Meanwhile, the rest of the economy will continue to wobble.


Unemployment has started to rise. During the week ended December 18, it touched 7 per cent, up from 5.7 per cent in November and 6.3 per cent in October.


At 7 per cent, unemployment is still lower than the 9 per cent rate during January-September 2016. The subsequent fall was because of the festivals and the busy agricultural season. This fall was sustained even beyond the festival season, well into early December. But, now we see a gradual increase in unemployment.


In the past four weeks, unemployment has risen steadily from 4.7 per cent to 6.1 per cent, 6.6 per cent and then 7 per cent.


This steady increase in unemployment has had an impact on consumer sentiment.


The BSE-CMIE-UMich Index of Consumer Sentiment fell sharply in the week ended December 18, by 9.2 per cent. This fall is the sharpest since its launch in January 2016. The fall was across rural and urban regions and across the two major components – the index of current economic conditions and the index of consumer expectations.


Almost all the gains in consumer sentiment since demonetisation were lost in this past week. The index is still a little above its level during the demonetisation week. But, the sharp rise in sentiment is almost gone.


More tellingly, it is consumer expectations (that rose dramatically after demonetisation) that have been eroded. The index of consumer expectations, at 100.6, was lower than its level of 101.2 during the week of demonetisation.


Rural folks have become more negative than the average urbanite. The index of consumer sentiment for rural India fell by 11.3 per cent during the week ended December 18, while the urban index fell by a lower 5.5 per cent.


Newspaper reports suggest that Bharatiya Janata Party leaders are worried about the impact of demonetisation on Assembly elections in Uttar Pradesh. The BSE-CMIE set of fast-frequency measures for unemployment and consumer sentiment suggest that they should indeed worry. They should worry just like the FMCG companies are worrying, as are several small industrial clusters and mandis.


The Indian consumer surprised us by her exceptional patience with demonetisation in the hope that this will usher in a less corrupt (if not corruption-free) India. She could surprise again.


The smaller fall in urban consumer sentiment compared to rural India partly reflects the instant gratification experienced by urbanites in the falling prices of vegetables, fruits and meats. Rural folks were not exactly pleased with this. This fall was the result of a breakdown of the supply chain. This breakdown could also lead to high inflation. Uncertainties have increased.


Sentiment gauge


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.

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