The fault lines in India’s consumer sentiment | Number Theory

Data for the rural and urban May 2026 rounds of the CCS was released by RBI on June 5.

India has so far avoided a big shock, either in terms of inflation or growth, on account of the war in West Asia. To be sure, an impact may become visible when growth numbers for the quarter ending June 2026 are released in August. However, one variable which does point to the war’s adverse effect on the economy is RBI’s Consumer Confidence Survey (CCS). Data for the rural and urban May 2026 rounds of the CCS was released by RBI on June 5. It shows a large drop in both rural and urban consumer confidence with the respective current situation index (CSI) dropping 5.3 and 7.4 points respectively for rural and urban areas between the January and May rounds. The West Asia war started on February 28. This makes it a good occasion to ask what exactly drives India’s consumer sentiment.

India has so far avoided a big shock, either in terms of inflation or growth, on account of the war in West Asia.

• 
  Consumer confidence passes the smell-test of economic environment

  RBI has been conducting the urban CCS for more than a decade now. The rural version of the CCS was only started in September 2023. A long-term look at the trend in current perception on income data – it asks respondents whether their income has increased, decreased or stayed the same compared to last year – shows that it follows intuitive reasoning on the state of the economy. It suffered in the aftermath of the economic disruption of demonetisation and roll-out of Goods and Services Tax in 2016-17. It tanked during the Covid-19 pandemic when economic activity was badly hit. Since then, there has been a gradual recovery. What is also interesting about the current perception on income in CCS data is that almost half of the respondents report constant incomes while the rest of them report an improvement or deterioration during normal times. This underlines both stability and churn within the economy.
• 
  There is a class aspect to consumer sentiment in both cities and villages

  One of the best things about CCS data is that it provides income-wise disaggregation. It allows us to track sentiment for not just the overall economy but also its rich and poor constituents . Both the rural and urban versions of the CCS shows that the rich have done better on consumer sentiment than the poor. In the 16 rounds (starting May 2023) for which we have data for both rural and urban CCS, net sentiment (difference between those who reported an improvement and worsening) was negative in all rounds for bottom two income categories and positive for the top two income categories.
• 
  The middle-income groups seem to be doing better in villages than cities

  This is among the more interesting and counter-intuitive findings from CCS data. One would expect people in cities to show higher consumer sentiment given greater employment and income opportunities than villages. This seems to hold true for the really rich as well as really poor where net current perception in income in urban areas is mostly higher than the corresponding rural values. However, this trend seems to reverse itself when it comes to respondents in monthly income categories of ₹25,000-50,000 and ₹50,000- 1 lakh. These are income cohorts one would associate with proverbial middle-class households in India. What drives this relative disadvantage of urban sentiment among the middle classes in urban areas? Is it because this class commits to a higher expenditure than the poor but cannot earn enough to sustain it? Is it because expenses are higher in cities than villages for this income cohort? More data is needed than the CCS provides to answer this question.

To be sure, CCS data is based on perception rather than hard numbers like official statistics on GDP or consumption expenditure surveys. This means that there can be an element of subjectivity in the consumer sentiment data. However, this does not make the CCS trends insignificant. Perception and expectations play an important role in the economic decisions of both households as well as firms. India has done well during economic crisis to avoid absolute destitution among the really poor through welfare measures, but the consumer sentiment story underlines another set of challenges for the economy, both of the recent and the structural variety.