Drop in consumer confidence spells trouble for recovery

Indians have become pessimistic about prospects of income, employment and spending.
Indians have become pessimistic about prospects of income, employment and spending.
Premium
 2 min read . Updated: 08 Apr 2021, 10:40 AM IST Aparna Iyer

Consumer confidence in India that was on a steady rise since late last year has abruptly fallen in March. Indians have become pessimistic about prospects of income, employment and spending.

All this is visible in the latest round of consumer confidence survey by the Reserve Bank of India (RBI). To be sure, consumer confidence was expected to have declined given resurgence in covid-19 infections and the resulting regional lockdowns across the country. However, since a nationwide lockdown was absent, expectations were that Indians won’t lose hope yet.

TRENDING STORIESSee All

Also Read | How India’s banking model has changed

That doesn’t seem to have panned out. Indians are fast losing hope, and consumers are most pessimistic about the economic situation. The net response for this segment dropped to 5.3% from 21.3%. In other words, more respondents expect things to worsen. The findings are not every different regarding perception for employment, income, inflation and even spending. What stands out is the deterioration in inflation perceptions. More than 80% of respondents believe prices will increase over the next one year. This is corroborated by the RBI’s household inflation expectations survey as well.

The upshot is that Indians believe getting a job will be difficult, incomes may worsen and that inflation will rise. The upshot of this is that consumers won’t spend. Indeed, more than a third of respondents said discretionary spending would reduce over one year.

What does this mean for companies and for the economy?

India needs consumers to return for its economic growth recovery to strengthen. Since consumers are not forthcoming, the growth recovery could take a while. Sectors worst hit by the pandemic, especially services, may continue to stay weak. These represent the discretionary spending of consumers.

The weakening of consumer confidence also means that banks and non-bank financial companies won’t be able to make Indians borrow and spend. Equated monthly instalments (EMI) are not enticing even with low interest rates when the outlook on income is negative.

MORE FROM THIS SECTIONSee All

The second wave of infections, which has been a put off for consumers, is the first hurdle India’s economic recovery faces. What policymakers need to ensure is that growth comes back faster than inflation.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close