Role of consumer perception in the return of Indian economy

The Indian economy has come as a surprise to both analysts and investors alike, recovering from a tight lockdown in the first quarter of FY 2020-21. Economic growth in the first quarter, which was negative at 23.9 per cent, came down to negative 7.5 per cent in the second quarter and is expected to be positive in the third quarter.

The fastest return has been in the profits of companies. A number of high-frequency factors associated with supply – such as crop yield, power generation, freight and the old GST collection, indicate a continuation in the third quarter. On the demand side, non-petroleum and non-precious imports saw an increase during December and January and sales of two-wheelers and tractors have been quite good recently. The equity market celebrates this boom in economic activity. India has received this restoration for free. It has not incurred heavy fiscal expenditure for this. He has not suffered the pain of taking loans or paying interest. There was also no need for large-scale investment from the government or the private sector. This is an extraordinary thing in itself. Now, it is important to strengthen this edge and ensure that the momentum continues.

The state of restoration can be maintained only when the families feel positive about their condition. While there has been a mobilization of international business in the past with the growth rate of India, the resumption of this time has been mainly based on the domestic economy. To give a boost to the economy of India, it is necessary that there is a desire to spend more than its basic needs in its vast consumer market. Two-wheeler sales are up 10 per cent compared to a year ago and tractor sales are up more than 40 per cent compared to a year ago. It states the strong discretionary expenses of consumers. But it reflects the decisions made by a very small segment of the Indian market. Now we need a scale of perceptions of the entire domestic sector. The consumer perception index (CSI) of CMIE is a useful criterion to assess the mood of families in India. After the demonetisation in November 2016 by CSI, the mood of the country was positive. There was an optimistic outlook even in the month of December. But in January 2017, the index fell sharply as people began to feel that demonetisation is failing to fulfill its intentions. CSI registered a steep 53 per cent drop in April 2020 after a stringent lockdown. Even before that the monthly changes in this index were hardly above one point. In this sense, the steep decline of 53 per cent in April 2020 was in a way a demolition of consumer sentiment. The index, which stood at 97 in March 2020, had dropped to 46 in April 2020. There has been only a slight improvement in consumer sentiment after that collapse. The index stood at 54 in January 2020.

Although the state of gross domestic product (GDP) has improved, the perception of households has not improved. The Consumer Trust Survey of the Reserve Bank of India (RBI) also shows the same trend. The decline in April 2020 is not estimated in this survey. The index stood at 85.6 in March 2020 and stood at 55.5 in January 2021. Whatever the current economic situation of the families, but they are very hopeful about their future. The RBI’s Future Expectancy Index for households was far more optimistic in January 2021 than in March 2020. The index stood at 115.2 in March 2020 as against 117.2 in January 2021. One limitation of the RBI’s Consumer Confidence Survey is that it covers only the urban areas of India and samples less than 5,400 homes are taken. In comparison, the consumer perception index of CMIE is based on a much larger sample and includes both urban and rural areas. This index shows that urban households have a worse perception than rural consumers. In January, the rural sector index was 55.8 while in urban areas it was 50.3. But both urban and rural families were expressing more confidence in their future than their current economic situation.

The Consumer Expectancy Index is typically 1.5 percent higher than the current Economic Situation Index. This was also true until the lockdown. The current economic conditions index had fallen to 55.3 per cent in April 2020, but the decline was 51.2 per cent according to the Consumer Expectations Index. In May 2020, the economic condition index had fallen by 10.3 per cent, but the expectation index had fallen by only 8.1 per cent. The consumer expectancy index in April and May 2020 was 6.9 percent and 9.6 percent higher than the current economic conditions index, respectively. It was 15.5 per cent higher in July 2020 and has been steadily upwards since then. The average distance between the two is about 11 percent. If families are hopeful about their future, then they are more likely to spend, which will also help the restoration process. It is also important to maintain the trust of families.

Just as the government has started encouraging private enterprises, it is important to understand the importance of families. Like private companies, the notion of families is also important to maintain this free reinstatement process.