Business Standard


- The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd MAHESH VYAS

Household consumer sentiments continue to fall. The week ended September 3 was the fifth consecutiv­e week of a fall in the CMIE-BSE-UMich Index of Consumer Sentiments. Following the persistent fall, the index was also at its lowest compared to its level in any of the preceding 25 weeks.

The index fell by 2.5 per cent during the week ended September 3. While this is a sharp fall, it is not an exceptiona­lly unusual drop. Weekly changes in the index of consumer sentiments do wobble quite a bit. While the average weekly change in the index is 0.06 per cent, the median change is -0.35 per cent. And, half the variations are between -1.9 per cent and +2.4 per cent. A 2.45 per cent fall is at the bottom quintile of the distributi­on. This is bad but there is a 20 per cent chance that it could be worse.

What makes this fall worse is that it comes after four weeks of continuous fall. The cumulative fall in the index over these five weeks is a substantia­l 7.7 per cent. And, this fall precedes the beginning of the festival season in India.

The week ended September 3 was on the cusp of several festivals. While Maharashtr­a was celebratin­g Ganesh Chaturthi throughout the week, Kerala was celebratin­g Onam that was due on Monday. And Eid-al-Adha (Bakri Eid) fell on Saturday.

Poor household consumer sentiments around these times do not bode very well for the economy. We have just seen that the first quarter saw a sharp fall in growth. Low growth and low employment are probably helping keep consumer sentiments muted.

Consumer sentiments are much worse in urban areas than in rural areas.

The urban index of consumer sentiments (base: 100 in September-December 2015) during the week ended September 3 was at 89. This is the lowest level since the launch of the index in January 2016. The index fell by 3.6 per cent during the week. Such a fall is exceptiona­lly high. It is worse than the bottom tenth percentile value of weekover-week change in the index.

It is disconcert­ing that Ganesh Chaturthi celebratio­ns in Maharashtr­a, Onam in Kerala and Eid across the country did not help improve the falling sentiments. In fact, urban sentiments fell unusually sharply during the week of festivals.

Unemployme­nt has risen in urban India. During the week ended September 3, the unemployme­nt rate rose to 4.9 per cent. Urban unemployme­nt has been high at around nearly five per cent in recent weeks. However, while unemployme­nt has risen, the labour participat­ion rate has not shown any correspond­ing increase. While the labour participat­ion rate did increase briefly during August, it quickly fell back and continues to remain well below 41 per cent. However, the unemployme­nt rate has risen from less than four per cent to now nearly five per cent.

Lack of jobs is likely to be the single largest source of poor consumer sentiments in urban India.

It is also likely (although we have not measured it directly) that the Reserve Bank of India’s (RBI) disclosure that demonetisa­tion did not yield any significan­t destructio­n of ill-gotten wealth could have disappoint­ed household across rural and urban regions. Remember, the bold decision to demonetise was hugely popular initially. The CMIE-BSE-U Mich index of consumer sentiments had reflected this popularity in November and December. Obviously, this popularity was based on the expectatio­n that black money would be destroyed. Now, with the RBI’s disclosure­s those hopes have been belied and this could have adversely impacted consumer sentiments.

While farm loan waivers have helped farmers repair their balance sheets, rains this year have not been very encouragin­g. The temporal and spatial distributi­on has been too volatile. While some regions are deficient on rains, other regions are ravaged by floods. This could have added to the woes of rural households.

At the end of three months of monsoon, precipitat­ion was 3.4 per cent below the long period average. Kharif sowing was 0.6 per cent lower than it was in the previous year. More importantl­y, the overall sowing is skewed by very high growth in acreage of cotton and sugarcane while sowing of foodgrain and oilseeds has fallen.

Expectatio­ns on the near future (about a year) are not very encouragin­g.

While the overall index of consumer sentiments declined by 7.7 per cent in the past five weeks, the index of consumer expectatio­ns declined by 8.2 per cent. This sharper fall in consumer expectatio­ns is a common theme in urban and rural areas.

This coming festive season is, therefore, unlikely to see any pick-up in demand from rural or urban households.

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 ??  ?? Lack of jobs is likely to be the single largest source of poor consumer sentiment in urban India
Lack of jobs is likely to be the single largest source of poor consumer sentiment in urban India

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