The economy’s CSI problem
Poor consumer sentiment is at the core of the country’s low consumption growth
The Reserve Bank of India (RBI)’s consumer confidence survey was released on Friday. It shows that the consumer confidence (current situation index or CSI) while almost at levels last seen in May 2020, is still well below prepandemic (or pre-Covid-19) levels by almost 20 points. The consumer confidence (future expectations index or FEI) fares better and is just around 5 points lower than pre-pandemic levels. This is an interesting dichotomy — people are still not very confident about the present (as RBI’s statement puts it, “the assessment for the current period remains in pessimistic terrain”) but are definitely more optimistic about the future. With a base of 100, a reading below 100 is considered pessimistic and above, optimistic. The CSI is currently at 62.3 and the FEI at 109.6.
It is important to note that apart from a brief period just ahead of the last general elections in 2019, the CSI has always been in pessimistic territory, while FEI has largely been optimistic except around the onset of the pandemic and during the height of the second wave. But till September 2019, the CSI stayed between 90 and 100; it fell to between 80 and 90 between September 2019 and March 2020, and just when it looked to be inching up, the pandemic struck, and it plunged, touching lows under 50 during the peak of the first wave (September 2020) and second wave (May 2021). While the November numbers that make up CSI are healthier than they were in September — the only parameter that has seen a dip is the one on prices, which is only to be expected given the current level of inflation — the fact that the overall number is still low is worrying, and it may well explain why the problem of aggregate demand (there isn’t enough) continues to plague the economy. Indeed, RBI governor, Shaktikanta Das, said as much last week when he pointed to the lack of recovery in consumption.
This is the real challenge for the government. Many high frequency indicators may be at or above pre-pandemic levels but unless the CSI looks up, it is unlikely that there will be a widespread and sustained recovery in demand, spending, and consumption. That’s a good input at a time the finance ministry has started work on next year’s Union Budget. At the HT Leadership Summit in early December, the finance minister said the budget would continue its focus on infrastructure — but it would help if it were a feel-good one.