Sentiment faces employment challenge

It is rarely that you find in an entire lifetime an event as disruptive for a country’s population as the demonetisation move Prime Minister Narendra Modi announced on November 8. The move made almost all the 290 million households of India stand in queues at banks. If two persons from every household stood in a queue, this mobilisation of people would be bigger than even in a general election. In the 2014 elections, for example, 554 million people cast their votes.


If people can be mobilised so effectively, there could have been a better cause than what is now turning out to be an expensive and futile exercise of exchanging currency notes. Evidently, people are willing to queue up without much ado and bear hardships in the belief that this is for a better future.


The BSE-CMIE indices on consumer sentiment saw an impressive increase after the announcement of demonetisation of Rs 500 and Rs 1,000 currency notes. The index rose by 13 per cent. Consumer expectations soared 14 per cent. The Reserve Bank’s Consumer Confidence Survey of November 2016 also reflects the same trend. "Current income perceptions and income expectations a year ahead depicted signs of strengthening when compared with the September 2016 round of the survey, due to a strong rise in positive sentiment and a decline in negative sentiment. The optimism regarding one-year ahead income continued to be strong in the November 2016 round of survey."


What is surprising is the finding from the RBI's survey that "net response for current and future spending on non-essential items also improved during this round of the survey”.


What then makes the consumer so gung-ho about the future, even as anecdotal evidences point to deep distresses building up in the economy? What if these expectations turned out to be misplaced enthusiasm?


Has the instant gratification-seeking aspirational consumer become a patiently-willing-to-wait consumer? Or were consumers so busy protecting their wealth in the fear of losing it that they briefly forgot their aspirations?


Consumer sentiment was not very buoyant in the first two weeks after November 8. This was the period of shock and a scramble to protect wealth, and of making a quick buck in converting other people's wealth. By the third week, the problem was "solved". The inevitability of the conversion had seeped in, the conversion mechanics and in some cases the conversion rates were digested. But, the interpretations of different segments of people were different.


The poor and the salaried middle classes who bear the greatest brunt of everyday corruption believed that finally the corrupt would suffer. Deep in his heart, the daily provisions provider who bribes government agents and pays protection money to local thugs is happier that these agents are seriously inconvenienced. The ever-so-sceptic salaried middle classes finally see hope and even justice in the anguish on the faces of those they believe had amassed ill-gotten wealth. Consumer sentiment shot up in the third week and has stayed high since.


It is evident by now that no black money will be unearthed because of demonetisation. But, that has not changed the view of the poor and the salaried middle classes because of a satisfaction that the rich have been inconvenienced and made to pay a price to middlemen (never mind, the middlemen are also corrupt), and that there is a chance there may be raids on them (never mind, again, that this could also increase corruption).


The strong sentiment notwithstanding, several anecdotal evidences suggest that the economy could be heading for a serious downturn. Migrant labourers is returning to their hometowns, supply chains are broken and production is being curtailed as retail offtake has taken a hit. Jobs will be hit and the data are beginning to show that.


Unemployment is on the rise. It rose to 6.6 per cent in the week ended December 11, the highest since demonetisation. Unemployment rose to 7.3 per cent in urban India and to 6.3 per cent in rural India. Consumer sentiment declined 0.3 per cent in urban India, but rose handsomely in rural India, possibly because of the prospects of a good rabi crop. Is this the end of the demonetisation party? Employment holds the key.


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 28, December 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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