Indian consumers still wary following pandemic, indicates RBI’s survey

Scars of the pandemic still appear to weigh large on the minds of the Indian consumer, making them cautious, shows the Reserve Bank of India’s (RBI) recent Consumer Confidence Survey. Though cloaking a marginal improvement in the July sentiment, on a macro level it still sticks to the pessimistic zone, remaining below the pre-pandemic Current Situation Index (CSI) levels.

July recorded a rise of 1.4 percent from 75.9 in May to 77.3 in the CSI levels recorded after the survey of 6000 respondents across 19 cities. The worsening general economic situation and employment ensured that consumer confidence had dropped to an all-time low in July 2021.

The latest survey, which came after the August 5 repo rate hike, attributes the improvement to a perception of betterment in areas of employment generation, household income and spending. However, the present CSI reading of 77.3 is below 90, which was the reading in December 2019.

Experts opine that the CSI trends can in a way be connected with the country’s GDP growth. Both the CSI and GDP have been on a decline since the middle of 2017.

“The CSI reading fell below 100 at the time. The GDP growth also declined before picking up in 2018 and then falling again from 4.2 percent to 3.2 percent during two quarters starting July 2019,” economist N R Bhanumurthy said.

The Future Expectations Index (FEI) that went from 113 in May to 113.3 in July is being attributed to the optimism expressed by the consumers on the outlook for the economic situation and their overall spending over the next year.

“It is nevertheless way below what the confidence was in the pre-COVID years. The FEI used to be well over 124 all of 2018-19. In the consumer’s view, the current situation has improved from a quarter ago. The index is higher, but it is still below 100, which only shows pessimism because the consumer is unhappy, though maybe he's less unhappy than in the previous quarter,” explained economist Shrinivas Khandewale.

The RBI survey reveals that in the consumers’ perception, prevailing price levels, as well as inflation, declined from that in the previous round of the survey. “They expect a further rise in prices, but inflation is expected to moderate marginally over the next one year,” it said, adding that participating households in the survey reported a slight rise in their current spending.

“They predicted that the pattern would continue for another year. This survey gathers information based on the qualitative responses regarding views on the general economic situation, employment scenario, price level, households' income, and spending,” N R Bhanumurthy said.

Though the RBI takeaway is that some very distinct green shoots of economic recovery are visible, and that is the reason for the central bank maintaining its real GDP growth target of 7.2% for FY23, with an upward bias, sustained recovery in consumer confidence still appears to be a while away.

As per the survey, though there is positivity among survey respondents about consumer spending, with improvements expected in the following year, they are still negative on job creation, inflation, and income levels in the current year.

On their expectations of lowering inflation levels, respondents from urban areas are not too confident about a fall in prices, with most expecting static levels to continue.

The survey showed inflation expectations to have come down by 80 basis points to 9.3%, compared to 10.1% during the May 2022 survey.

Similarly, the manufacturing sector outlook for Q1FY23 reveals that manufacturers foresee a rise in the cost of raw materials as well as funds required in the first and the second quarters of FY23.

Most manufacturers surveyed also expressed confidence that they would be able to increase the selling price of products to compensate for the spike in costs, expected to ease in the third and fourth quarters of FY23.

The manufacturing outlook, when read along with the Utilisation Survey or assessment of Order Books, Output, and Capacity Utilisation Survey (OBICUS) shows utilization in overall manufacturing capacity touched 75.3% in Q4FY22, in comparison to 72.4% in Q3FY22.

Current capacity utilization is above pre-COVID numbers with new orders in Q4FY22 also being substantially higher than the previous quarters. “The steady rise in the manufacturing outlook shows business confidence in demand conditions. On the other hand, the steady pick-up in the inventory ratios reflects greater willingness and readiness to meet the demand for fresh orders,” the survey said.