Our stimulus should act on consumer confidence
PremiumRBI’s index shows too slow a recovery. If post-covid confidence stays weak in spite of a big infrastructure thrust, the Centre may need to revise its ‘crowd in’ strategy for a broad revival
For all the emphasis placed by policymakers on revving up economic growth by spending big money on infrastructure, this approach is yet to rescue consumer confidence from its covid slump. The Reserve Bank of India’s (RBI) latest report on this variable, as quantified by its survey-based index, reveals an agonizingly slow climb-back. The urban sample survey’s latest round, conducted in January and released last week, shows its current-situation index at 63.7, up just from 62.3 in November and better than its historic low of 48.5 in May 2021, but well below its pre-pandemic level of 85.6 in March 2020. As any reading above 100 indicates net optimism, it may sound like good news that the future expectations part of RBI’s index was at 103 in January. But this was a drop from November’s 109.6, Omicron being the likely culprit. Moreover, human well-springs of hope have always kept it relatively cheerful, with only two dips into pessimism seen over the past half decade—at the pandemic’s outbreak and at the peak of last summer’s Delta wave. What matters for demand conditions are the present perceptions of people. And the gloom visible in these needs to lift.
For nearly two years, consumer confidence has tracked our health crisis. However, the third wave of infections is fast ebbing, with the week’s rolling average of daily new cases about to slip under 50,000 soon, down from a peak of above 311,000 on 25 January. If Omicron is the virus’s last gasp, as some experts now suspect, then we should expect RBI’s index to increasingly become a function of stimulus efforts to revive our economy. While the government’s vastly enlarged capital expenditure of ₹5.5 trillion in 2021-22 is yet to have a noticeable impact on index readings, attributable perhaps to a typical lag, policy expectations today revolve around a consumption boost brought about by another ₹7.5 trillion worth of such public spending next fiscal year. Though infrastructure creation for long-term growth is a valuable part of this plan, it must also support consumer confidence for the Centre’s strategy of ‘crowding in’ private investment to work out. The weak link in our recovery has been household consumption, which must stage a robust revival for demand fulfilment by private investors to set off a self-reinforcing cycle of income generation across the country. As it happens, this has largely been a story of starts and stops, as seen in our jagged trend of industrial production.
Large outlays on public projects are known to have major multiplier effects on the earnings of people at large, but much depends on the pace at which money is pumped into the economy, and plans often take quite excruciatingly long to execute. Although reliable data on project execution is hard to come by, what’s apparent is that it has not achieved much so far as a broad commercial catalyst. The Economic Survey this year cited record corporate profits and raising of risk capital as positive signals: “[An] expected increase in private consumption levels will propel capacity utilisation, thereby fuelling private investment activity." Could this wait turn out to be far longer than anticipated? It would be advisable for the Centre to watch RBI’s index for a bounce in confidence. Should optimism fail to show up even in a post-pandemic scenario by the latter half of 2022-23, by when it expects a sharp pick-up in consumer demand, it may need to temper its supply-side focus with some direct stimulation for a change. We can’t afford to let demand languish.
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