RBI survey shows halt in consumption expenditure
The RBI announced the launch of the May 2019 CCS on 25 April, 2019. The CCS is normally conducted a week after the RBI announces the survey, a senior economist with a leading private bank in India told HT, requesting not to be identified.Updated: Jun 07, 2019 07:44 IST
The RBI’s latest round of Consumer Confidence Survey (CCS), conducted in the month of May shows that despondency has gripped urban India as far as economic sentiments are concerned.
The net share of respondents who think they will spend more, either now or a year from now, on non-essential items has fallen to an all-time low since September 2015, the earliest period for which this data is available. This could not have happened without an unprecedented squeeze in mass purchasing power. See Chart 1
The CCS is conducted in 13 Indian cities — Ahmedabad; Bengaluru; Bhopal; Chennai; Delhi; Guwahati; Hyderabad; Jaipur; Kolkata; Lucknow; Mumbai; Patna; and Thiruvananthapuram — and the May 2019 version is based on responses of 5245 households. If these trends do not reverse themselves very quickly, the already decelerating economic momentum in the economy could get even worse.
Private Final Consumption Expenditure (PFCE) has had an average share of 56% in India’s GDP between 2014-15 and 2018-19. A decline in discretionary spending, such as on consumer durables, travel, or even eating out, is bound to lead to a decline in PFCE’s contribution to overall economic growth.
The numbers are not entirely unexpected. With the exception of the December 2017 and March 2019 CCS rounds, net perception on current general economic situation has been in negative territory since March 2017. On employment, the situation is even worse. The current net perception on employment scenario has been in negative territory since March 2016 CCS round except in November 2016 and March 2019 CCS rounds.
To be sure, expectations for a year ahead, on both the general economic situation and employment front have been positive during these periods. However, the fact that current situation values have not improved in keeping with future expectations, shows that the optimism about future has not materialised.
What is also intriguing about the May 2019 CCS numbers is that they show a sharp decline from the turnaround in the March 2019 round.
The RBI announced the launch of the May 2019 CCS on 25 April, 2019. The CCS is normally conducted a week after the RBI announces the survey, a senior economist with a leading private bank in India told HT, requesting not to be identified.
This could mean that the survey was conducted before election results or even exit poll predictions were announced. If the responses were recorded before there was clarity on electoral outcomes, they could have been impacted by an element of political uncertainty.
However, if these trends continue in the next CCS round, which will happen after the budget, India’s economic policy establishment will do well to realise that its primary task is to prevent a recessionary grip on the economy.
First Published: Jun 07, 2019 07:24 IST