For the past two years, I have been highlighting to the readers of this blog that almost two third of the Indian population is experiencing conditions that qualify to be termed stagflationary. Their incomes have been stagnant or declining in many cases, while their cost of living has risen materially.
The expenses on the critical services like education, healthcare, telecom, transportation and essential goods like food, energy, housing etc. have increased materially in the past 2 years. Besides, the proportion of aspirational (non-essential) spending in the overall consumption basket has also been increasing consistently. On the other hand, the household incomes have not kept pace with the rise in the cost of living. Wages for unskilled and semi-skilled labor have hardly changed. The employment opportunities for them have also diminished. The women participation in the labor force has reduced, pressuring the average household income. The wages for the highly skilled workers have seen sharp increases, but these workers form a very small part of the workforce in India.
As per the latest Consumer Confidence Survey (April 2022) published by the RBI shows that in the recent months the consumer confidence has shown some improvement, but it remains much below the pre pandemic levels. The key highlights of the survey, carried out to assess the current perceptions and one year ahead perception of the consumers, could be listed as follows:
· Over 70% of respondents expect that their spending will rise over the next one year; while only ~6% expect the spending to decrease. An overwhelming 78.6% of the respondents believe that their spending on essential items will be higher in the next one year; whereas only 29% believe that spending on non-essential items will be higher. This is not much different from the current perception.
· Only 53% of the respondents expect that their income will increase in next one year. This is a significant improvement from the current perception of 16%.
· About 84% of the respondents believe that the rate of inflation will increase in the next one year. This number is the highest in at least two years. This is actually worse than the current perception.
· Only about 53% of the respondents believe that the employment level will improve in the next one year. This number is better than the 48% recorded in March 2021, but remains much far away from the comfortable mark. The one year forward perception is significant improvement from the current perception of ~24%.
· Less than one half of the respondents believe that general economic conditions will improve over the next one year.
Clearly, the future expectations of the consumer are not very enthusiastic and mostly relying on hope of normalization. Unwinding of the pandemic stimulus may actually dampen consumer confidence. The household savings may not show any meaningful improvement in the near term.
The government will have a challenging balancing act to perform in FY23 and FY24 in the run up to the next general elections in 2024.
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