11.8 C
New York
Sunday, June 20, 2021
HomeStoriesThe promise of ‘Acche Din’ is still a hard nut to crack....

The promise of ‘Acche Din’ is still a hard nut to crack. Consumer Confidence Index confirms the notion.

Reserve Bank of India’s governor Shashikanta Das announced its latest monetary policy review. The report summarises the Gross Domestic Product forecast of India for the current financial year pegged at 9.5%. The growth projection has been lowered from 10.5% to 9.5% and the inflation forecast for the year has increased from 5% to 5.1%. The increased inflation rate is like a smack in the face given the poor economic prospects of the country, drop in income due to lockdown and increased expenditure on healthcare services. Usually declining growth rate forecast is followed by a cut in interest rates so that increased liquidity or more cash in hand crops up in the market. To counter a rising inflationary situation the RBI has to increase the interest rate. But increasing interest rate will be a blow to the common man’s pocket, the RBI is doing the best it can in this clammy situation which is, keeping the interest rate stagnant. In economics, this crisis is known as stagflation. Stagflation is a dilemma where the economy reports slow economic growth which can be due to high levels of unemployment, poor income and increasing prices or inflation. This period also documents rising inflation along with a decline in Gross domestic product or stagnation.

Inflation in India is jointly managed by the government of India and RBI by constituting a monetary policy committee. It includes the governor of RBI, deputy governor of RBI, executive director of RBI, a member of PM‘s economic advisory council, a member from an economic think tank and a professor of finance. As per the mandate of the RBI inflation managed by the MPC has to be kept at 4% with 2% on either side of the edge.

What is Consumer Confidence Index?

RBI recently conducted a Consumer Confidence Index which has few important visions. CCI is a pointer for economic growth and household spending on consumption. When consumers feel optimistic about the future they increase their expenditure or consumption. personal consumption accounts for 60% of the Indian GDP hence CCI holds significant leverage on the economy. It is calculated every couple of months by RBI in 13 majors cities like Ahmedabad, Bhopal, Guwahati, Patna, Trivandrum et cetera. The survey includes themes like general economic condition, price situation, personal income and expenditure and employment scenario. Based on responses two indicators are created – the current situation index (ESI) and future expectations index (FEI). CSI shows how people feel about the current scenario on themes like income, expenditure et cetera a year ago. FEI projects what people expect the future to be on the same themes a year from now. Variables, past indexes are looked into to decipher the data.

What are the findings of CCI?

Chart one of CSI and FEI shows that CSI has hit rock bottom of 48.5 in May. The index value of hundred is important here because it distinguishes between negative and positive feelings, meaning below hundred is negative and above hundred is positive. the consumer sentiment is at 48.5 it means that it has steered more than 50 points away from the neutral. CSI also hit an all-time low a year ago. The FEI also moved towards the negative territory for the second time in a row. However, there were upward movements towards the positive side in 2016 and 2019 because of demonetisation and Prime Minister Narendra Modi’s re-election.

What is pulling CSI and FEI under?

RBI says that CSI is walking on a negative path because of negative impressions about the general economic situation and employment.

Chart two deals with responses to the general economic situation. The question was asked to the households about their view on the current economic situation- whether it has boosted, remained the same or worsened.

The difference between the responses ‘worsened’ and ‘boosted ’ is the one researchers look at. The responses are calculated in percentage terms and if the responses come out as negative it means people think the situation has worsened. Let’s do some maths here – if 50% of the people feel that situation has worsened and 40% feel that the situation has improved our net response is -10%. These responses are for the coming year and negative results mean that people expect the situation to deteriorate in the coming year.

What RBI found on the general economic situation there was a decline in CSI and FEI after 2019.

Chart 3 deals with the theme of the employment scenario. The situation and sentiment of people regarding unemployment have been going downhill since Prime Minister Narendra Modi was elected in 2014. There were only two movements on the graph which were in 2019 when Narendra Modi was re-elected as prime minister and demonetisation. Future expectations on employment were doing fine until the pandemic hit us. Apart from falling trust in the government to provide people with jobs the net responserecorded is thumping. People who believe that the situation on employment has improved constitute only 7% of the sample, people who believe that the situation has worsened constitute 82% of the sample from the previous year. The net response is a titanic figure of 75%. The sentiment that things will go south in the coming year adds insult to the injury. It is the reason why the FEI or future expectation is below zero points.

Chart 4 deals with the theme perceptions and expectations on income, if a consumer has disposable income she will increase the consumption expenditure so they both are proportional. The perceptions of income are also bleak. The current perception of income has seen a steep decline to -50%. There have been a few peaks that again coincide with the demonetisation and Narendra Modi’s re-election as prime minister. A very few percentages of the sample feel that in the coming year prospects on income may get better. It is the reason why FEI is on the positive side by a whisker.

Net responses fair on the negative side because of which FEI index has taken a nosedive.

What does the spending level predict?

The surveys have collected data on spending levels especially onitems that are not used regularly like travel, leisure, celebration, luxury items etc. The respondents reported that Indians started reducing their expenditure on non-essential items shortly after mid-2018. The pandemic not only reduced the spending further but pulled the indicators into a stark negative region. It implies that people have spent less today and they will be spending even less tomorrow, this pattern of reduced expenditure is going to stay for a long time unless measures are taken to increase the personal disposable income. Expenditure is a very important factor when it comes to pulling the economy out of a deadlock or stagflation. Reducing the interest rate and simultaneously controlling inflation is the need of the hour, if this is not done a rebellion is expected. This is the reason why demand is rising from corporates to print more currency notes.

What is the conclusion?

What we see now is wheels within wheels. To solve this matter if the government aims for fast economic growth with the help of the private sector steering India out of stagflation by asset creation, consumer spending on the non-essential item has to go up. For the situation to occur personal disposable income has to go up, for that to happen employment prospects have to look sunny. For that to happen companies have to invest in asset creation. We are stuck in a circle and the way out of it can be printing more currency notes.                 

See also  TikTok and Tantrums: CEO Slammed by Chinese Patriots
RELATED ARTICLES
- Advertisment -

Most Popular

Recent Comments

%d bloggers like this: