Consumer sentiments are set to make a handsome recovery in July after a tepid show in the past four months, unperturbed by the recent rise in GST rates and mostly unchanged employment scenario. However, households are cautious about the improvement in business prospects over the long-term, which calls for reflection, says think tank Centre for Monitoring Indian Economy (CMIE).
As per the think tank’s data, growth in the index of consumer sentiments (ICS) has been losing momentum in the past four months. The index increased by 5% in February, before falling in March, April and May this year. In May and June 2022, it was only 1%, CMIE notes.
“Now, in July, the ICS is likely to register a handsome growth. Some caveats, however, warrant that this reversal be considered with some caution,” it further notes.
The CMIE report shows that the 30-day moving average (DMA) ICS as of July 24, 2022, was 6.7% higher than its level a month ago on June 24, 2022. It was also 6.7% higher than average ICS level for June 2022, marking distinctly higher growth rates than seen in any of the recent months.
“The 30-day moving average ICS has risen in spurts during the first 24 days of July. It was mostly flat in the first 9 days. Then, it grew rapidly till July 17 and, after a brief halt till July 20, has been climbing new heights every day. If the trend continues, the ICS could end close to 75 for July. If it crosses 75, July 2022 would have clocked the fastest growth in the ICS in a year,” CMIE points out.
“A year ago, in July 2021, it had shot up by 11.1%. But, that was partly a recovery from the fall recorded during the second wave of Covid-19. This time there was no preceding fall, just a slowing growth rate,” it further states.
The recovery in consumer sentiments so far this month is somewhat evenly spread between urban and rural regions of the country, as the ICS of the two regions as of July 24 was 6.3% and 6.8% higher than the respective average ICS levels in June. While the rise in rural consumer sentiments has been fuelled by a normal monsoon and gradual pick-up in sowing during the kharif season, there seems to be no apparent reason for the upbeat mood of urban consumers.
“It would be rather stretched to claim that the small fall in the inflation rate in June has sustained in July and that this has helped improve consumer sentiments. It is also odd that the recent increases in GST rates or interest rates do not seem to have disturbed urban India much. The 30-DMA employment indicators do not show any improvement either. The urban employment rate has been falling,” avers CMIE.
All that seems to have changed is slight rise in urban India’s optimism for the short-term future, the think tank opines.
The 30-day moving average of the index consumer expectations (ICE) for urban India as of July 24, 2022 was 6.8% higher than its June 2022 average, and 10.6% higher than a month ago. Urban households also grew more optimistic about the financial and business scenario of the country.
“In June 2022, 11.5% of the households believed that the financial and business conditions in India would improve over the next 12 months. As of July 24, this proportion had risen to 15.1%. As of June 24, 2022, the proportion was 10.3%,” it adds.
But this guarded optimism, as urban households are not equally enthusiastic about the prospects over a five-year horizon. The proportion of households who believe that the economy would grow consistently for the next five years has grown to only 11.7% from 10.1% as of June 24, 2022, and the June average of 10.8%, showing only a moderate improvement, compared to the one-year horizon. The urban households also don’t believe that the improvement in the business environment over the next one year would benefit them correspondingly.
“While the proportion of urban households optimistic on the business environment over the next 12 months increased from 10% to 15%, the proportion of households who believe that their own incomes would rise over the next 12 months increased far more modestly from 12% to 14% over the same period,” the CMIE paper says.
Rural households are equally cautious about the long-term prospects, with only a meagre improvement in number of households in a month to July 24, 2022, who expect an improvement in business environment over an one-year or five-year horizon.
This apprehension exists despite the improvement in their current economic conditions. “The index of current economic conditions for rural India jumped by 9.1% over the month ended July 24. But, the index of consumer expectations for rural India grew by a modest 3%,” CMIE says.
“While the substantive improvement in consumer sentiments during July is welcome, the caution reflected by households regarding the future is worth reflection,” it concludes.
