Re­serve Bank sur­veys show where the bat­tle is dur­ing the elec­tions

Mint ST - - MARK TO MARKET - [email protected]

The Re­serve Bank of In­dia’s (RBI’S) sur­veys pro­vide a fair as­sess­ment of how the present gov­ern­ment has done on in­fla­tion and em­ploy­ment. The Bharatiya Janata Party (Bjp)-led gov­ern­ment has for sure won the war on in­fla­tion. The credit, of course, goes to RBI. The cen­tral bank’s adop­tion of an in­fla­tion tar­get and the stead­fast ad­her­ence to achiev­ing the 4% man­date has, to a great ex­tent, re­duced the fear among In­di­ans on price rise.

The pro­por­tion of house­holds that ex­pects prices to rise faster are lower now than they were in March 2014, just ahead of the elec­tions that brought the BJP to power. Chart 1 shows that house­hold in­fla­tion ex­pec­ta­tions have been reined in con­sid­er­ably in the past four years.

His­tor­i­cally, elec­tions have been won and lost be­cause of in­fla­tion. In 1981, soar­ing onion prices claimed the Janata Party-led gov­ern­ment. How­ever, this time around, it is not just the cost of liv­ing, but the op­por­tu­nity of earn­ing a liveli­hood that mat­ters. Hence, for a poll-bound coun­try, the per­cep­tion on em­ploy­ment and growth out­look are far more im­por­tant.

In the ab­sence of ro­bust em­ploy­ment data, a look at RBI’S sur­vey of con­sumer con­fi­dence shows that the gov­ern­ment needs to rem­edy the em­ploy­ment sit­u­a­tion ur­gently.

Chart 2 on em­ploy­ment ex­pec­ta­tions from the sur­vey of con­sumer con­fi­dence shows that In­di­ans have be­come less op­ti­mistic on their em­ploy­ment prospects. In Septem­ber 2014, which was a few months after the gen­eral elec­tion, about 36% be­lieved that em­ploy­ment op­por­tu­ni­ties have im­proved. Now, this pro­por­tion has come down to 33.9%. What is more dis­turb­ing is the per­cent­age of re­spon­dents, who said House­hold in­fla­tion ex­pec­ta­tions have fallen in the past five years largely due to RBI’S adop­tion of in­fla­tion tar­get­ing. em­ploy­ment op­por­tu­ni­ties have wors­ened, has in­creased sharply to 47.2% now from just 28.7% in Septem­ber 2014.

In­di­ans are less op­ti­mistic about their em­ploy­ment prospects in the com­ing year as well. The net re­sponse—which is the dif­fer­ence be­tween the re­spon­dents who be­lieve em­ploy­ment prospects will im­prove and those who be­lieve it would worsen—was 23.1 per­cent­age The op­ti­mism over em­ploy­ment prospects and in­come have dimmed un­der the Bjp-led gov­ern­ment.

51.9 points, far lower than the 51.9 per­cent­age points in Septem­ber 2014.

Put sim­ply, the gov­ern­ment has not lived up to its prom­ise on em­ploy­ment gen­er­a­tion.

Much of the dent in con­sumer sen­ti­ment has been due to the de­mon­e­ti­za­tion shock in 2016. The goods and ser­vices tax (GST), which sought to for­mal­ize the econ­omy, re­sulted in many small busi­nesses go­ing un­der.

That said, the op­ti­mism given by The pro­por­tion of house­holds that ex­pect prices to rise faster are lower now than they were when the BJP came to power

About 47.2% re­spon­dents feel that em­ploy­ment prospects have wors­ened

De­mon­e­ti­za­tion and GST have dented con­sumer sen­ti­ment

ris­ing Pur­chas­ing Mangers’ In­dex shows that busi­nesses are more con­fi­dent than be­fore on de­mand con­di­tions. This agrees with RBI’S Oc­to­ber sur­vey, which showed that the busi­ness sen­ti­ment in­dex is ris­ing, in­di­cat­ing op­ti­mism on prospects.

The gen­eral elec­tion, sched­uled in just un­der six months, will be a lit­mus test for the present gov­ern­ment. So far, its big­gest prom­ise of jobs is where it lacks.

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