After growing every month since January 2023, consumer sentiment in India saw a decline of 1.5 percent in August 2023, according to Economic Outlook from the Centre for Monitoring Indian Economy (CMIE). The average monthly increase in India's consumer sentiment from January to July 2023 stood at 2.6 percent.
The decline in consumer sentiment could potentially affect Indian businesses preparing for peak sales during the upcoming festive season. A significant component of CMIE's consumer sentiment index is the consumers' inclination to purchase durable goods like cars, TVs, and other household appliances.
Analysts noted that one of the primary factors influencing the sentiment is monsoon. “August has been really bad in terms of monsoon and that could be dampening sentiment,” said Ajay Thakur, analyst at Anand Rathi Institutional Equities.
Family incomes plateau
Another significant challenge has been family incomes. From December 2022, when only 17.4 percent of households reported a higher income compared to the previous year, the figure rose steadily to 30.2 percent by April 2023. However, this growth plateaued at around 30 percent for the next five months until August 2023. Such a standstill hasn't been observed in the past two years, a period considered the post-pandemic recovery phase. For context, prior to the Covid pandemic, between 32 percent and 36 percent of survey participants reported an increase in their incomes compared to the previous year.
Households in India have also been pessimistic about their future incomes. “The proportion of households that said that they expect their household income to rise a year into the future fell from 25.6 percent in July 2023 to 23.7 percent in August; this is the lowest proportion since March 2023,” said Mahesh Vyas, CEO, CMIE, in a research note. “Further, the proportion that said that they expected their incomes to fall a year later rose from 15.3 percent to 17.7 percent, which is also the highest in the last three months,” he states.
Persistent high consumer inflation only further dampens consumer sentiment. The provisional consumer price index (CPI) for August has been 6.83 percent. July saw an inflation of 7.44 percent.
The prospects
Despite the challenges, analysts are hopeful about festive demand. They said that last year, a prolonged monsoon in a shorter time frame affected the festive season's demand. “But this year, the rains are comparatively moderate, and there's an extended period for festivities. This could lead to a stronger demand during the festive season,” said an analyst on request of anonymity.
Talking about demand, Saurav Anand, economist at Standard Chartered Bank, said that this is a key period to watch out for as the business sector has remained solid through July, boosted by favorable rains. “The festive season coincides with the pre-election season. We could see spending remaining pretty strong,” he added.
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