The po­lit­i­cal mes­sage from cen­tral bank’s con­sumer con­fi­dence sur­vey

PRESENT TENSE, FU­TURE PER­FECT

Mint Asia ST - - Mark To Market -

The Re­serve Bank of In­dia’s (RBI) con­sumer con­fi­dence sur­vey is im­por­tant be­cause con­fi­dent con­sumers buy more goods and ser­vices, pro­vid­ing a boost to the econ­omy. But it’s also a barom­e­ter of how happy peo­ple are with the gov­ern­ment’s man­age­ment of the econ­omy. With the gen­eral elec­tions so near, could the con­sumer con­fi­dence sur­vey pro­vide some clues to the po­lit­i­cal fu­ture?

Let’s take peo­ple’s per­cep­tion about their em­ploy­ment prospects first. In De­cem­ber 2013, a few months be­fore the last gen­eral elec­tions and soon af­ter the ta­per tantrum that un­set­tled In­dia’s econ­omy, only 29.1% of those sur­veyed said their eco­nomic con­di­tion had im­proved from what it was a year ago, while 34.4% said it had wors­ened. The rest said there had been no change in their job prospects. The net re­sponse, or those who thought their job prospects were brighter than what they were a year ago mi­nus those who thought they were bleaker, was a neg­a­tive 5.3 per­cent­age points.

What is the sit­u­a­tion now? In the Septem­ber 2018 RBI sur­vey, 35.2% said their em­ploy­ment prospects had im­proved, while 45.5% said they had wors­ened. The net re­sponse is a neg­a­tive 10.3 per­cent­age points, far worse than in De­cem­ber 2013.

How­ever, those sur­veyed are hope­ful that job prospects will im­prove a year from now. The one-year-ahead-ex­pec­ta­tions sur­vey shows that 54.1% say job prospects will im­prove, while 29% be­lieve they will worsen. That’s a net pos­i­tive re­sponse of 25.1 per­cent- age points. Even in De­cem­ber 2013, 45.1% thought their job prospects would im­prove, while the net re­sponse was a pos­i­tive 24.9 per­cent­age points, only slightly lower than what it is now. That is not a good sig­nal for the in­cum­bent gov­ern­ment.

Let’s take per­cep­tions of in­come next. In De­cem­ber 2013, 30.9% of those sur­veyed by RBI said their in­comes had in­creased from what they were a year ago, while 15.5% said in­comes had fallen. The net re­sponse was a pos­i­tive 15.4 per­cent­age points. In Septem­ber 2018, 28.3% said their in­comes had risen, while 23.4% said they had de­creased. The net re­sponse is a mere 4.9 per­cent­age points, much worse than in De­cem­ber 2013.

What about ex­pec­ta­tions for the year ahead? The net re­sponse in Septem­ber 2018, at 51.3 per­cent­age points, is higher than the net re­sponse of 37.2 per­cent­age points in 2013. Peo­ple re­main hope­ful that in­comes will rise; the gov­ern­ment can de­rive some so­lace from that.

On in­fla­tion, the net re­sponse in Septem­ber 2018 is bet­ter than in 2013. The per­cep­tion of the eco­nomic sit­u­a­tion is also bet­ter. The de­tails are given in the ac­com­pa­ny­ing chart. Note that this sur­vey is done in six big cities, so it is a gauge of sentiment in metropoli­tan In­dia, and not small towns and vil­lages. Also, note the de­te­ri­o­ra­tion in sentiment com­pared to that in Septem­ber 2016, be­fore de­mon­e­ti­za­tion started.

RBI’S cur­rent sit­u­a­tion in­dex of the con­sumer con­fi­dence sur­vey is at 94.8 for Septem­ber 2018, com­pared to 91.6 in De­cem­ber 2013, not too much of a gap. But the fu­ture ex­pec­ta­tions in­dex is at 121.1 now, com­pared to a mere 96.9 in De­cem­ber 2013.

In­deed, the gov­ern­ment has done a re­mark­able job of keep­ing peo­ple’s hopes alive.

The risk for the gov­ern­ment is that cur­rent re­al­ity may fi­nally dampen fu­ture ex­pec­ta­tions, which is what seems to be hap­pen­ing in the mar­kets.

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