Consumer confidence collapsed in the month of May, and the expectation for the next one year is that of pessimism for Indian households, survey results of the Reserve Bank of India (RBI) shows.

RBI did not yet release the Industrial Outlook Survey, which had showed ‘stark pessimism’ in sentiment for the manufacturing companies who were expecting very sharp deterioration in sentiments across all sectors for the just concluded fourth quarter, and the current first quarter.

The Consumer Confidence Survey was conducted in 13 major cities between May 5-17 through telephonic interviews because of the nationwide lockdown. A total of 5,300 households participated in the survey.

The RBI said the current situation index (CSI), has touched a historic low and the one year ahead future expectations index (FEI) also recorded a sharp fall, “entering the zone of pessimism.”

“Consumer perception on the general economic situation, employment scenario and household income plunged deeper into contraction zone …; while expectation on general economic situation and employment scenario for the year ahead were also pessimistic,” RBI Consumer Confidence Survey, released on the central bank’s website showed.

Overall consumer spending remained intact, mostly due to relative inelasticity in essential spending. “Consumers, however, reported sharp cuts in discretionary spending and also do not expect much improvement in the coming year,” the RBI survey said.

Households also expect a sharp rise in inflation in the next three months, as well as the next year to come, notwithstanding the RBI’s own expectation that inflation would taper off from the second half, which it used as a justification to cut rates on May 22.

The Households’ Inflation Expectations Survey, conducted in 18 major cities, and based on responses from 5,761 urban households show that people expect a sharp rise in inflation too.

“Households’ median inflation perception and expectations increased sharply in May 2020 as compared with the March 2020 round of the survey,” the RBI said, adding three months and one year ahead median inflation expectations rose by 190 and 120 basis points, respectively, over the previous round.

The households are now expecting increasing price pressure on food products; more households expect general prices and inflation to raise over three months horizon as compared to previous round.

However, the households expect prices of all product groups, especially cost of housing, to ease over a year-ahead period.

Professional forecasters

While the RBI did not give its own projections on inflation and growth, even as it said the economy will contract in the current financial year, a group of 22 professional forecasters indicated that the real gross domestic product (GDP) growth rate could be a negative 1.5 per cent in 2020-21, but can rise to a positive 7.2 per cent in 2021-22. Real Gross Value Added (GVA) growth could fall to a negative 1.7 per cent in 2020-21 and rise to 6.8 per cent in 2021-22.

Real private final consumption expenditure (PFCE) is expected to decline by 0.5 per cent during 2020-21 but likely to record 6.9 per cent growth during 2021-22. Real gross fixed capital formation (GFCF) is likely to register negative growth of 6.4 per cent in 2020-21 but likely to grow by 5.6 per cent in 2021-22.

“Forecasters have assigned the highest probability (86 per cent) to real GDP growth lying below 2.0 per cent in 2020-21,” the RBI said, adding, for 2021-22, highest probability (19 per cent) has been assigned to GDP growth lying between 6.0-6.4 per cent.