THE bi-monthly results released by the Reserve Bank of India of its Consumer Confidence Survey provides some indication of consumers’ perceptions on the current state of the economy as well as of future expectations. The latest round released on 8, December 2021, is based on the survey conducted during the period October 25 to November 3, 2021, covering 5310 households across 13 major states. The survey results provide two summary indicators namely, the current situation index (CSI) and future expectation index (FEI). The former captures consumers’ perception of the current scenario and the latter measures expectations one year ahead compared with the current situation.

The broad parameters chosen for the indexes are the following: perceptions and expectations on the general economic situation, on employment, price level, income and spending of both essentials and non-essentials. The summary indicators suggest whether the popular perception is showing positive or negative mood on the economic performances in the current situation and also expectations on those parameters one year ahead. Expectations are definitely not actuals but perceptions and expectations give effective signals to investments and consumption as well. Private investors decide their future projects on the basis of their expectations on profit and the mood of the consumers on various aspects that help them to decide on prospective investments.

The consumers also decide their spending on particularly non-essentials on the basis of their expectations on future incomes. If the expectations are low, then discretionary incomes do not generate adequate demand as people become sceptic about their future income stream. There can be several reasons for such negative perceptions: political turmoil, war, terrorism and conflicts, pandemic and so on. It is also crucial to see whether public perceptions bounce back to normalcy once situations ease out.

CONSUMER SENTIMENTS INDEX

According to Consumer Confidence Index, there are signs of improvement on the whole for most of the parameters compared to two months back. But it is also a cause of concern that for of the five components that constitute the index four of them show negative absolute values, which essentially indicates that negative sentiments still prevail on account of perceptions relating to overall economic performance, employment, price levels and income.  The composite improvement from 57.7 in September 2021 to 62.3 in November 2021 is basically because of a fall in negative values of parameters during the past two months. The summary measure of the Future Expectation Index also shows some improvement from 107.0 to 109.6 during this period and excepting price levels the popular expectations seem to be positive for the coming year.

People however believe that the price situation is going to worsen further in the year ahead. Facts on each of the parameters of both the indexes however offer greater insights into the prevailing public sentiments. In November 2021, 70.8 per cent of the respondents perceive that the economic situation has worsened. This figure is of course lower than 72.3 per cent recorded in September 2021. On future expectations, 43.9 per cent believe that the economic situation will improve in the year ahead while 38.7 per cent still believe that situation is going to worsen in the future. On account of employment 65.2 per cent of the respondents think that situation has worsened and only 18.8 per cent perceives some improvement in the employment situation. Also, 48.6 per cent expects that the employment situation is going to improve in the coming years but about one-third of the respondents think that employment prospects are going to worsen in the coming year. A whopping 95.4 per cent thinks that the price situation has worsened and equally worrying that 76.5 per cent expects that price levels are going to increase further in the coming year.

More than half of the respondents think that their income has declined although the percentage of people perceiving a decline in income was much higher in November last year. With situations gradually back to normalcy in terms of activities restored, 62.5 per cent of the respondents perceive an increase in spending and 66 per cent expect that spending is going to rise in the coming years. But if we see the perceptions by categories of spending it shows that preserving discretionary income continues to be the dominant sentiment. Roughly 76 per cent of the respondents believe that spending on essential items has increased and more or less equal share of people, 74 per cent think such spending is going to increase in the year ahead.

But if we see the figures on perceptions and expectations on the spending of non-essential items, only 12.1 per cent believe that such spending has increased and 60.3 per cent think it has declined. Even one year ahead only 23.4 per cent of the respondents think that spending on non-essentials is going to increase.

NOT AUTOMATIC

The Centre for Monitoring Indian Economy measures the Index of consumer sentiments on a weekly and monthly basis and in its latest release indicates a fall in consumer sentiments in December once again after five months of impressive rise. This might be because of the slowing down of spending relative to the initial months just after the lockdown and also because of worrying signs of increasing Covid cases in a few states. What is important in these trends is assuming recovery as something automatic that follows from the opening up of businesses is by any chance not true.

Firstly, there has been a huge income loss of the vast section of unprotected workers and self-employed petty producers who either lost their jobs or exhausted their savings during the lockdown. Initial signals of rising demand for final products after the lockdown may not immediately create demand for intermediate goods in the supply chain. With demand being slowly picking up, suppliers would primarily use their inventories and may not easily go back to the pre-Covid scale of operation. Just as new investments and demand create ripple effects in related sectors through positive multiplier similarly contraction also has negative multiplier effects that do not allow the economy to recoil back to the initial levels automatically.

Primarily it has been a contraction in demand but in subsequent rounds it impacted both demand and supply with businesses becoming risk-averse due to sluggish demand, restricted mobility of labour, lack of access to inputs and so on, eventually giving rise to a vicious circle of low revenue for firms with low income for households and obviously low revenue mobilisation for the government.

This simply means production and circulation have to expand and that should be triggered by an infusion of demand by raising the purchasing power of the people who suffered significant income loss. Even those minuscule percentage of regular employees whose salaries were being protected during the lockdown would indulge in precautionary savings as a response to uncertainty in future.

High fluctuations in monthly data of index of consumer sentiments reflect this uncertainty prevailing in common perception. The low expectation of spending on non-essentials even one year ahead as the indicators suggest is bad news for the manufacturing sector. In fact, the share of durable consumer goods in an average Indian consumption basket was already low even during the pre-pandemic situation and because of the pandemic and related uncertainties, this will further come down.

The demand for the manufacturing sector largely depends on the demand for durables such as vehicles, refrigerators and various household appliances and if the sluggish demand continues for a longer period recovery in manufacturing could be a long haul. Hence public expenditure on health care, providing income protection to poor households, revamping employment guarantee schemes both for rural and urban areas are urgent requirements for a successful recovery.