The consumer sentiment index in November is far below the pre-pandemic levels though better than November last year, suggesting the economic recovery is excruciatingly slow and uninspiring, the Centre for Monitoring Indian Economy said.
According to CMIE, the index of consumer sentiments in November 2021 was substantially lower at 43% compared to pre-pandemic month of November 2019 though 16.1% higher than it in November 2020. “No other indicator has been as sluggish in recovery,” it said.
CMIE is of the view that no other economic indicator is as important as the consumer sentiments index because it reflects the well-being of households, their perceived growth in income, their expectation of future income streams and their propensity to spend beyond just essentials.
“Economic growth is supposed to deliver on these counts and not just on tax collections or freight movement or foreign trade,” it said, adding that even employment is not an adequate measure of economic well-being.
CMIE further said that the index of consumer sentiment had reached its lowest in May 2020 when it was over 60% lower than the 2019-20 level. From there, though, it has scaled back 44%, but that’s only half way to a full recovery.
“Unlike most other fast-frequency economic measures there is no V-shaped recovery in consumer sentiments,” it said. As per CMIE, 39% of the households in November reported that their income was lower than it was a year ago and 37% expected their incomes a year ahead to be worse than their current incomes. Only 6% of the households believed that this was a better time to buy consumer durables compared to the conditions a year ago while over 50% believed that this was a worse time than a year ago to buy such durables, it said.
“This despondency reflected in poor expectations and the concomitant reluctance to spend is the biggest challenge to India’s recovery from the pandemic induced restrictions that led to the great economic slowdown in 2020,” it added.
However, the index of consumer sentiments has risen by 26% from its level in June this year though the pace of growth has slowed down in November to just 1.2% month-on-month.
Worse is that the recent growth has been significantly uneven. “The index of consumer sentiments grew by 18% in urban India between June and November 2021 while it grew by a much faster 30% in rural India in the same period,” it said, adding that with this the gap between rural and urban sentiments has widened.
CMIE is of the view that with vaccines against Covid-19 available relatively easily, the greatest uncertainty to renewed growth and optimism is behind us. “But, the scars the pandemic related episode left on the economy principally, low labour force participation rates and low household incomes are yet to heal,” it concluded.
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