PESSIMISM ON THE RISE
There is heightened pessimism regarding the future – regarding their incomes over the next 12 months, regarding the economy in the next one year and also regarding the next five years.
The raging second wave of Covid-19 has had an adverse impact on household sentiments. It couldn’t have been otherwise. There is widespread anguish. This is spilling over into anxiety regarding the long-term wellbeing of households. Infections, scarcities, fear and even deaths are rampant. Science has delivered vaccines but India fell short of delivering these or providing other more ordinary medical services to the millions that got infected. Household sentiments and expectations were bound to get clouded.
Consumer sentiments have been particularly battered during the last three weeks. The index of consumer sentiments fell by 4.3 per cent in the week ended April 18, then by 4.5 per cent in the week ended April 25 and then further by another 5.4 per cent in the week ended May 2. This brings the weekly index to its lowest since November 2020.
The Index of Consumer Sentiments declined by 3.8 per cent in April. This is its sharpest fall since May 2020. It is also an unusually large fall by historical standards. Both components of the index, the Index of
Current Economic Conditions and the Index of Consumer Expectations, fell. Current conditions fell by 2.5 per cent and expectations fell by a much larger 4.5 per cent.
The fall in consumer sentiments in April reflects a substantial worsening of household income. In March, 45 per cent of the respondents had said that their incomes were worse than they were a year ago. In April, this proportion went up to 47 per cent. During the same period, the proportion of respondents saying that their income had improved compared to a year ago declined from 6 per cent to 4 per cent. So, perceptions on household incomes worsened at both ends of the income distribution of households.
It is worth pointing out here that the “year-ago” in the comparison above was the month when households were hit by a huge fall in incomes. This was April 2020, the month of the most draconian lockdown. In April 2021, more households are telling us that they are worse off than even in that month of complete shutdown. We will know in another four months if April 2021 incomes were indeed lower than they were in April 2020. We know now that perceptions had worsened.
While households seem to have suffered on the income front, their perceptions on buying consumer durables did not deteriorate much in April 2021. The proportion of households that believed it was a good time to buy consumer durables declined marginally from 6.9 per cent to 6 per cent. But, the proportion that believed it was a worse time to buy these also declined from 50.4 per cent to 48.1 per cent. This is an intriguing counterintuitive data point. It reflects the different experience of different income groups during the base period of April 2020. Households with relatively modest incomes were far more pessimistic on purchase of consumer durables then. The level of pessimism in those households has improved moderately, while perceptions in other households are largely unchanged.
There is heightened pessimism regarding the future — regarding their incomes over the next 12 months, regarding the economy in the next one year and also regarding the next five years. All three components of this index deteriorated during the month. The index of consumer expectations dropped 4.5 per cent in April 2021. This is a sharp fall.
Nearly 46 per cent of the responding households expect their incomes to worsen in a year’s time. There is persistence in this pessimism. Before the pandemic, less than ten per cent of the households expected their incomes to decline over a year. When the pandemic struck in 2020, this ratio shot up to 50 per cent. Its rollback is turning out to be very sticky even as the economy has started to recover. By November 2020, when the economic recovery was well acknowledged, 45 per cent of the households believed that their incomes would decline in a year. This improved to 43 per cent by February 2021. But, this improvement from 50 per cent being pessimistic to 43 per cent being pessimistic is not as impressive as the economy rebounding from a 24 per cent fall to no fall. Now, in April, the pessimistic view has risen up to 46 per cent.
Pessimism is also stark in household perceptions regarding their future compared to their current conditions. Before the pandemic and its consequences hit India, more households were optimistic about their future wellbeing compared to the households which had experienced a good year. The number of households that felt their incomes would rise a year ahead was, on an average, two per cent higher than those who said that incomes had increased since a year ago. Since April 2020, households that felt their incomes would rise a year ahead were, on an average, one per cent lower than those who said that incomes had increased since a year ago. This relative pessimism was the highest in February and March 2021.
This pessimism matches the views households have on the financial and business conditions in India during the next one year. Again about 45 per cent believe that economic conditions in India are going to worsen over the next one year. Only 6 per cent believe they will improve, while the remaining 49 per cent believe they will remain unchanged.
Nearly 46 per cent of the responding households expect their incomes to worsen in a year’s time