On December 7, 2022, the Reserve Bank of India released two reports. The first one related to a 35 basis point hike in repo rates to combat inflation and received considerable media attention. The repo rate hike was accompanied by the latest RBI forecast that the GDP of India will grow by 6.8% in financial year 2022-23. It is down from previous forecasts, but a big achievement nevertheless as almost all major economies are suffering badly this year.
The same day, the RBI also released results of its latest bimonthly Consumer Confidence Survey, the sixth and final one for this calendar year. This has been almost completely ignored by the media. Yet, it is of enormous significance as the survey results clearly indicate that "aspirational" India still thinks that the glass is half empty when it comes to consumer sentiments.
Aspirational middle class India is still reluctant to open her wallets, particularly for non-essential items. Quite simply, high GDP growth rates cannot be sustained unless consumer sentiments improve and they start spending more freely. Private consumption expenditure accounts for 58% to 60% of the GDP in India.
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One big manifestation of this is the continuing sluggishness in two-wheeler sales even as passenger car/SUV sales break all records. But more of that later as one takes a deeper look at the Consumer Confidence Survey results. This bimonthly survey asks questions related to employment, income, prices, expenditures, and expectations about the future.
As per this round of the survey, consumers do not perceive the present and future as very bleak like they did till early 2022. Yet, they are still worried and displayed negative sentiments when asked about their current economic situation. The current situation index right now is at 83.5. Anything below 100 is negative territory.
Consumers were asked about their perception of the current economic situation. At the moment, 55.7% feel that it has worsened. That's an improvement over January 2022 when 66.7% felt the economic situation has worsened. But of real significance is a majority of consumers still thinking the economic situation has worsened. In contrast, 28% feel that it has improved.
Why do consumer sentiments remain so weak when the Indian economy grew at 8.7% last year and is set to grow at a minimum of 6.5% this year?
The reasons are three fold: barring the minority of well-heeled and relatively prosperous Indians, a majority are still worried about their current state of employment, income, household expenditure and inflation. When asked about their perception about the current situation of employment, a hefty 49.5% said it has worsened. That is much better than the 65.4% who said it had worsened in January. But 49.5% is still a worryingly high number.
When asked about their current perceptions on income, 32.9% said it has decreased while 20.9% said it has increased. The situation is much better now than in January 2022. Yet, more Indian consumers say their income has decreased than those who say it has increased.
A whopping 87.5% of consumers say inflation has increased. Significantly, there is hardly any change compared to January. Three out of every four Indians say family expenditure has increased. That is more than in January.
It's not out of choice. As many as 84.7% say expenditure on essential items has increased. They are somehow managing family budgets by cutting down on discretionary spending. Close to 44% say their expenditure on non-essential items has decreased. That's an improvement over January(54.5%). But the reluctance to spend is crystal clear.
Just one set of data will demonstrate this reluctance in real-life decisions.
Two-wheelers are a symbol of upward mobility for aspirational Indians. Yet, even when GDP grew by 8.7% in financial year 2021-22, two-wheeler sales actually declined by 12% compared to the previous year.
In contrast, sales of high-end passenger cars zoomed up by 40%. It's also the same story this financial year. Passenger car sales are set to break all records and maybe cross 3.8 million units this year.
Two-wheeler sales have improved compared to last year; but not dramatically or significantly. Between April and November 2022, total two-wheeler sales were 14.40 million units. Analysts reckon the number for the full year would be about 17 million units. That's better than 2021-22 when sales were 13.45 million units. But its still way below the 21.18 million units recorded in 2018-19.
Data from all other sectors show a similar trend. The Indian economy is still not out of the woods.
But its not all bleak. The same consumers display significant optimism when asked about the year ahead. For instance, 52.5% feel confident that their income will increase in the next one year. Similarly, 51.5% feel that their employment situation will improve in the next one year. Besides, the Future Expectations Index now stands at almost 115, reflecting growing optimism. No wonder, 32.8% of consumers say their expenditure on non-essential items will increase in the next one year.
To be sure, consumers are not bursting with optimism, but even the cautious optimism could well be the magic bullet that Finance Minister Nirmala Sitharaman needs in 2023.
(Sutanu Guru is Executive Director, C Voter Foundation. He can be reached at sutanuguru@gmail.com.)