India: CMIE: Households wary of discretionary spending

  • On 7 Apr 21, Reserve Bank of India released updates to its regular Consumer Confidence Survey. These refer to the 9-day period 27 Feb 21 – 8 Mar 21.
  • For simplicity we will refer this as the first week of Mar 21. The RBI releases two indices the Current Situation Index and the Future Expectations Index. Both reflect net responses, i.e., the difference between respondents whose perceptions are improving against those with deteriorating perceptions.
  • An index is computed as 100 plus net responses. It reflects views of households in state capitals of 13 large states of India. It is therefore an index of consumer confidence in the larger towns of India.
  • In early Mar 21, the Current Situation Index was 53.1 compared to 55.5 in early Jan 21. This index had touched its nadir at 49.9 in Sep 20. It has improved marginally since then. But, the current situation index is still much lower than the 85.6 level it was a year ago in Mar 20.
  • More households were reporting an increase in spending on essentials than a year ago and also compared to Jan 21. But, the spending on non-essentials has worsened. Only 12% of the households reported an increase in spending on non-essentials. A year ago, this ratio was 28%.
  • The uptick in spending on essentials could be the result of higher inflation. The proportion of households reporting an increase in inflation increased to 88.8% the highest level in about seven years.
  • Inflation expectations have gone up as well. Over 81% of the households expect inflation to go up. This is the highest proportion of households expressing such a view in three years.
  • The constituents of the RBI consumer confidence indices and CMIE’s consumer sentiments indices are different. CMIE’s indices are based on five questions perceptions regarding (i) current and (ii) expectations of household income, (iii) year-ahead and (iv) five-year ahead expectations of economic conditions, and (v) sentiment over purchases of durables compared to a year-ago.
  • In early Mar 21 when the RBI said that 12% of urban households had increased their spending on non-essentials and 59% had reduced it, the CMIE survey said that 4% of urban households considered it to be a good time to buy consumer durables and 54% said it was a worse time to buy consumer durables compared to a year ago.
  • Both surveys tell us that the urban Indian household continues to remain wary of making non-essential or discretionary expenses. Till this wariness continues, economic recovery will remain elusive.

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