Poor rains in some states drag down rural consumer sentiment in June

Sentiment declined across urban and rural regions. Urban Sentiment were down by a marginal 0.18 per cent. But, rural Sentiment plunged 5.56 per cent.

 

This sharp fall in rural Sentiment at the end of the first month on monsoons should be a source of worry.

 

A state-wise analysis reveals that sentiment declined in those states that received poor rains and they improved in those states that received good rains. Since the monsoon reaches north India only towards the end of June, we see the relationship between rains and rural Sentiment only in the states south of the Vindhyas and in the eastern states.

 

Rural Sentiment declined sharply by about 35 per cent in West Bengal and Kerala during June. Both states received less-than-normal rains during the month. Rains in West Bengal were 15-20 per cent lower than normal. In Kerala, it rained well in the last week of June, yet the cumulative rains during the month were 6.6 per cent below normal. Rural Sentiment fell 21 per cent in Karnataka, 18 per cent in Chhattisgarh and 14 per cent in Madhya Pradesh. Rains were below par in all these states.

 

Maharashtra and Telangana received excellent rains and rural Sentiment were up 8 per cent and 19 per cent in these two states, respectively.

 

Jharkhand and Andhra Pradesh were outliers, though. In Jharkhand, rains were 37 per cent below normal but, rural Sentiment were up by 53 per cent. In Andhra Pradesh, rains have been about 50 per cent above normal but, rural Sentiment were 14 per cent down.

 

Kharif sowings have started picking up. Foodgrain acreage was up by 9.5 per cent. Even arhar sowing has picked up although it is still 11 per cent lower than during the same period of the previous kharif season.

 

While sowings have picked up, rains have played truant. The first two weeks experienced 17 and 12 per cent higher precipitation than normal; but the next two weeks saw precipitation fall to 11 per cent and 5 per cent below normal. Overall, the monsson was 0.14 per cent below normal till June 28.

 

Urban Sentiment have been consistently lower than rural Sentiment. In June, they were seven per cent lower than rural Sentiment. Urban Sentiment are also less volatile. Rural Sentiment have been subjected to substantial external shocks in recent months, ranging from crashing prices and loan waivers. There is no matching external stimulus to spur urban Sentiment. They have suffered a falling labour participation rate after demonetisation.

 

Urban Sentiment have been poor across town-size. Interestingly, while rural Sentiment have been quite buoyant, small towns have been very negative. This is evident from the region-wise distribution of consumer Sentiment during January-April 2017. Urban Sentiment are split into four town-size groups based on the number of households in 2011. Very large town are those that had more than 200,000 households then; large towns are those that had between 60,000 and 200,000 households, medium-sized towns are those that had between 20,000 and 60,000 households and small towns had less than 20,000 households, each.

 

Small towns are mostly Census towns, or semi-urban towns. They have a population of more than 5,000 and at least 75 per cent of the working population is employed outside agriculture. These towns accounted for 30 per cent of the growth in urban population in the 2011 Census. Before their classification into Census towns they were villages. So, in many ways these small towns are very similar to villages. But, their consumer Sentiment are starkly different from their rural counterparts.

 

During January-April 2017, the all-India consumer Sentiment index was 96.5. The index for rural India was 99.5. But, the index for small towns was much worse at 87.9. In fact, while rural India had the best index, small towns had the worst. One possible explanation for this is that the sops being given out to farmers in the villages do not accrue to these small towns. But, since their economies depend a lot upon the agro-economy around it, they suffer the ill-effects of demonetisation and the consequent fall in trade. The index for medium-sized towns was a shade better at 88.7, but only just.

 

Large towns were much better at 96.5. In fact, they were just at the all-India average level. But, the very large towns were a shade lower at 94.7.

 

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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