RBI’s consumer confidence survey finds people are even more pessimistic about current conditions in the economy than they were in March 2014
The current spate of state elections in the five states of Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana and Mizoram are taking place at a time when consumers’ perceptions of economic conditions are very low. The Reserve Bank of India’s consumer confidence survey shows that 45.2 percent of those surveyed believe the current economic situation has worsened from a year ago, compared to 33.2 percent who said the situation had improved. It’s a far cry from November 2016, at the beginning of demonetisation, when 49.5 percent of those surveyed said the economic situation was better than a year ago and only 23.9 percent said it was worse.
Indeed, the perception now is even worse than it was in March 2014, just before the last general elections, when the percentage of those saying the economic situation had deteriorated was much lower at 39.5 percent.
On employment, the RBI survey found last month that 47.2 percent perceived that their employment opportunities had diminished from a year ago. In March 2014, just before the last national elections, this metric was a comparatively low 28.7 percent.
On income, the November survey found that a mere 29.9 percent said their income had increased from a year ago. In March 2014, 34.3 percent had said their incomes had gone up compared to a year ago.
On spending, 73 percent in the November survey said their spending had gone up compared to a year ago. This percentage has come down sharply in recent months; in June, 83.8 percent had said their spending had gone up. That fits in with the slowdown in consumption expenditure shown by the recently released GDP numbers for the September quarter.
The upshot has been a further fall in the Current Situation Index of the Consumer Confidence Survey in November. Said the RBI survey, “The current situation index (CSI) declined further in November in a phase that commenced in November 2016, on the back of growing pessimism on the general economic situation and the employment scenario as also some cutback in spending.”
What has been left unsaid is that the fall from November 2016 was very likely on account of the twin shocks of demonetisation and the introduction of the Goods & Services Tax and the pain has been prolonged by the recent bout of high fuel prices.
The RBI also asks those surveyed what their expectations are for the year ahead. Most of us are optimists, which is why the readings for future expectations are invariably better than people’s assessment of their current situation. However, even the Future Expectations index declined in November due to, as the survey put it, ‘lower optimism on the employment scenario and household spending’. It is, however, at a higher level than what it was in March 2014. The government seems to have done a good job of keeping up people’s hopes for the future.
Although the initial high expectations of an improved economy from the new government have long vanished, the percentage of people who think the general economic situation will improve in the next one year was 53.6 percent in November, compared to 47.6 percent in March 2014. But then, the percentage of people who think the economy will get worse was also higher, at 31.2 percent in November against 21.1 percent in March 2014.
The RBI survey for November was carried out in the thirteen cities of Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Mumbai, Patna, and Thiruvananthapuram. It is therefore entirely possible that the economic situation of voters, especially rural voters, will be very different from people in these urban and metropolitan centres. And, of course, there are many other factors that influence voters apart from the economic situation. Let’s not forget that the BJP won a thumping victory in the Uttar Pradesh state elections, even though the consumer confidence survey data was dismal at that time too.
It’s also worth noting that the survey is at odds with the Purchasing Managers’ Survey, which showed a buoyant economy in November. The PMI survey is of the 500 largest companies, so it may not reflect sentiment in other parts of the economy. But there is an anomaly because companies are reporting robust demand while people are saying they are cutting back on spending. It’s also possible that because perceptions take time to change, the good news in the PMI data will percolate down to consumer confidence with a lag.It will be interesting to see whether people’s perception of their economic situation reinforces the anti-incumbency factor in the current state elections. That said, there is no room for complacency. Perceptions matter and the ruling party will be well advised to take the results of the RBI surveys to heart and find ways and means of improving sentiment.
Assembly Elections 2018: Read the latest news, views and analysis here