What caused consumer sentiments to soar now?

Consumer sentiment rose steadily and sharply over the past four weeks. At 104.8 for the week ended April 9, the consumer sentiment index recovered much of its losses in the recent past.

More importantly, this rise in the index is faster than even immediately after demonetisation.

The sentiment index had peaked at 109 in the week ended December 11, 2016. This peaking is generally interpreted as the initial euphoric reaction in households to the Prime Minister's bold demonetisation move in early November. Within four weeks of the announcement of demonetisation, the index scaled up over 10 per cent.

In comparison, during the most recent four weeks the index scaled up by 18 per cent. This is a far more dramatic improvement in the sentiment index in comparison to the rise after even the demonetisation event.

The most significant event preceding this recent sharp rise in sentiment was the state elections in March. The results of the elections were stunning and decisive. BJP's tally of seats in Uttar Pradesh was much higher than expectations. And, its victory in Uttarakhand followed by its successful claim to form governments in Goa and Manipur sent a powerful signal that the party was in a very strong position.

Could this have had a positive impact on consumer sentiment? The data series is still too young and it may be perilous to generalise. Yet, it does seem that consumer sentiment swing positively with bold and decisive events associated with governments.

The November demonetisation was perceived as a bold and decisive move to stamp out corruption. Consumers applauded this and sent the index soaring. Now, the state election results indicate a clear mandate in favour of a political party that is perceived to be far more decisive and more likely to take bold decisions than others. Again, consumers responded positively with the index rising handsomely.

Interestingly, during both times when the index surged, it was driven by a sharp positive move in rural India. Urban India reacted less enthusiastically.

It is very likely that the massive farm loan waiver announced by the newly formed Uttar Pradesh government played a major role in raising the spirits of the rural folks. Uttar Pradesh is the largest state and its waiver would have raised expectations in other states. The state announced a Rs.364 billion farm loan waiver on April 5. This would benefit 21 million farmers in the state.

All major political parties had made a promise that they would waive off farm loans if they were elected to power. The Congress and Samajwadi Party made statements to the effect that waivers should have been more generous. Maharashtra resisted pressures to waive off farm loans but, it did increase allocations to agriculture substantially. The state continues to face serious pressure to waive off farm loans.

These events led to the rural consumer sentiment index rising sharply by 11.7 per cent during the week of the farm loan waiver ended April 9.

In contrast, urbanites were not at all impressed. While the rural index grew by 11.7 per cent, the urban consumer sentiment index inched up by just 0.35 per cent. 

Sentiment of rural and urban folks have been moving in opposite directions through all the past four weeks. The consumer sentiment index for rural India accelerated by growing by 2.3 per cent, then 4.9 per cent, 6.6 per cent and finally by 11.7 per cent in the last four weeks. In contrast, the index for urban India grew by 4.6 per cent in the first week, then by 2.8 per cent and then it shrunk 4.4 per cent in the third week. A good rabi crop would also have contributed to the optimism in rural India.

The farm loan waiver seems to have accentuated this divergence in consumer sentiment in rural and urban India in recent weeks.

The effect of the loan waiver was apparently strong enough to negate the ill effects of social tensions that could have erupted following cow vigilantism, banning of slaughter houses, etc. A farm loan waiver has no religion or caste bias. All farmers who had debts upto Rs.100,000 benefited. Tangible and instant economic benefits do trump all other considerations.

Were urban sentiment spooked by fears of tax raids following the passage of the finance bill? Unlikely. A hypothetical fear with low probabilities (such as a tax raid) is very different from an instant and tangible benefit of a loan waiver for all.


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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