Sentiment hurt, but do we care?

It is easy for sentiment to be hurt. Any less-than-respectable mention of a caste, a community, or lawmakers, now even judiciary or any other specific identity, even in a piece of fiction, can lead to seriously adverse consequences for the author. But, what about the sentiment of all identities put together. Apparently, it does not seem to matter much. Sentiment is hurt in real life in a measurable sense, not just in a piece of fiction. But, there are no protests.

In real life, everybody's case is nobody's case.

The BSE-CMIE-UMich Consumer Sentiment Index, at 95.25 as of the week ended February 12, was 1.7 per cent higher than its level a week ago. The previous week, it had fallen by 2.9 per cent. Thus, it is still lower than it was two weeks ago. But, this is not a story of one or two weeks. It is the story of an entire year and more.

The BSE-CMIE-UMich Consumer Sentiment Index for India has remained mostly in the band of 95 to 100 since its launch in January 2016. The average of the monthly index of consumer sentiment between January 2016 and January 2017 is 98.9. Given that the base of this index is the September-December 2015 period , this implies that consumer sentiment has been low through most of 2016 and early 2017 compared to their levels in late 2015.

This sustained low sentiment of the consumer should be considered as the single greatest challenge to the revival of economic growth in India. Low sentiment implies low desire to spend. And, low spending implies low investments and, therefore, low growth.

Consumer sentiment fell in September 2016 to a low of 96.1 but then it recovered smartly to 99.5 in October. This was the build-up to the festive season. Probably, the "surgical strike" against Pakistan announced by the government helped raise sentiment in October and then Navaratri and Durga Puja festivals built upon a good kharif crop after many seasons. By the time, we reached Diwali, and the index was well over 100.

The biggest boost to the consumer sentimnent index was the November 8 announcement of demonetisation. Consumers reacted positively to the announcement. In three weeks, the index reached its then all-time high of 106.5 (in the week ended November 27). It then scaled up further to 106.9 and then 109 in the following two weeks.

Rhetorical speeches swayed the mood into the belief that corruption would be uprooted and, more importantly, that the rich are being punished -- implicitly, for the their ill-gotten wealth. A hope survived that, possibly, the poor would benefit from the temporary pain. The pain of deprivations caused by demonetisation did shave off some of the optimism during mid-December. But, hopes were raised towards the end of the month, as the Prime Minister was expected to make a public announcement on the New Year's eve, which also marked an end of the period sought by the Prime Minister to rid the country of corruption.

The Prime Minister's speech failed to impress. There was no announcement of the amount of black income unearthed or the number of people punished. Sops to select sections of the population were just not enough to justify the pain of demonetisation. The long-term benefits, if any, were not tangible. Further, the constant flow of threats to raid and send notices did not help build confidence. If these threats were a strategic response to assuage the frustrations of those who believed in demonetisation but could not digest its apparent failure, it did not have the desired impact. The consumer sentiment index fell in January 2017.

Just like high expectations and soaring hopes of rich dividends from demonetisation sent the consumer sentiment to new heights, the loss of confidence made the index fall very sharply. The Consumer Sentiment Index rose 10 per cent or 2.5 per cent per week during the four weeks following demonetisation. It fell nearly 12 per cent in the three weeks of January, or at the rate of 4.1 per cent per week.

On a net basis, consumer sentiment is hurt following demonetisation.

Re-building confidence in the consumer and re-kindling the desire to consume to improve the quality of life will remain a challenge for some time. If we recognise this challenge, possibly, we may deal with it faster and better. 


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.

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