Inside the mind of a reluctant Indian consumer
Premium- The Mint/CVoter Consumer Tracker shows that the Indian consumer is still hesitant when it comes to spending
Is the glass half empty or half full? Cliched as it is, the answers to this question hold the key to the future prospects of the Indian economy.
In a piece in Mint early December 2021, the authors had contended that while robust GDP growth rate was back, the sentiments of ordinary Indian consumers remained weak. The authors had also quoted Nobel Prize winning economist Richard Thaler: “The sad truth is that many behavioural economists know very little about human psychology".
Soon after the GDP growth rate of India was announced in early June—a very healthy 8.7% in 2021-22—there was a debate on whether the recovery of the Indian economy was ‘V-shaped’ or ‘K-shaped’. The real debate should be about what ordinary Indians feel about their financial situation, their plans to spend on consumer goods, including durables, and their expectations about the future.
Past haunts present
Uncanny as it appears, the results of the CVoter Tracker of Consumer Sentiments, conducted in late November 2021 and published in Mint, have proven to be startlingly prescient when CVoter went back to Indian households in June 2022 to ask similar questions. Let’s look at one example before we present the detailed results of the latest survey in a more structured and analytical form.
In November 2021, we asked salaried Indians how hopeful they were of a salary hike in 2022. Just about 20% of the respondents were confident of a hike, while more than 41% felt there was no chance of a hike.
This month, we asked the same set of ordinary Indians: Did you get a salary hike this year? Pay hikes are usually given in April every year. A little over 9% of the respondents said they had got a hike, while 58% stated they had not received one this year. About one-third of the respondents claimed their salaries had declined.
This one set of data neatly sums up the real challenges that finance minister Nirmala Sitharaman faces as she makes valiant efforts to push the Indian economy back into a high growth trajectory. Close to 57-58% of the GDP in India is generated by consumer spending. If that doesn’t improve, there is no way for high GDP growth rates to be sustained.
The results of the CVoter Tracker are not very different from that of the bi-monthly Consumer Confidence Tracker released by the Reserve Bank of India on 8 June. In this “perception" tracker, about 19% of the respondents said their income had increased, while 46% said it had remained the same. More than 36% claimed their income had gone down.
The ‘let’s wait’ mantra
The CVoter Tracker was designed to keep the respondents engaged by asking a limited set of six simple questions whose answers could be easily provided. The results came in when one of the authors was taking a flight. The airports were so crowded and the aircraft so full that the conclusions seemed surreal. After all, one regularly sees reports of “vengeance holidays" after two years of lockdowns. But, how many Indians actually went on a holiday during the summer vacations?
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When asked, less than 13% of the respondents said their families had holidayed this summer, while more than 68% said they had not. About 19% said they were still looking for cheap options to go on a short holiday. So, what explains the crowded airports, flights, trains and tourist destinations? Analysts often forget that India has a population of 1.4 billion. So even if a mere 13% go on a holiday, it means close to 180 million Indians. Not many countries in the world have a population of 180 million! Another 270 million Indians could actually be holidaying now—if they have managed good bargains and cheap options.
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The ‘let’s wait’ syndrome is not limited to just going on a holiday during summer vacations. According to the RBI Consumer Confidence Tracker, there is one set of data that details perceptions about current spending on “non-essential" items. While 81% felt that their expenditure on essential items has increased, just about 17% stated that their expenditure on “non-essential" items has increased.
The CVoter Tracker asked: Did your family buy a new smartphone or LED TV or some other expensive gadget since January 2022? The answers bear a striking resemblance to the RBI report. Just about 15.3% of the respondents said they had spent money on a fancy gadget, while 72.3% said they had not. Another 12.5% said they were waiting for a big discount sale. The purchase of “non-essential" items was postponed even when they became “essential", in a manner of speaking.
The CVoter Tracker asked if people had spent money on an air-conditioner or cooler since January 2022 to beat the heat wave. While 9% of the respondents said they had, 91% of the respondents claimed they had not. What could be a more telling demonstration of weak consumer sentiment than the fact that an overwhelming majority did not spend money even on an AC or cooler despite the terrible heat wave that is still sweeping across many parts of India?
Some readers might have noticed that the tracker asked consumers about their decisions “since January 2022". That’s because CVoter tracks consumer sentiment throughout the year and had written in Mint before the Union Budget on how it will play a key role in the efforts made by Sitharaman and her team to revive the economy.
Window shopping
The reasons behind the weak consumer sentiment are fairly evident. While inflation has played its part, it is the current level of income and earnings that has played the most significant role. As mentioned earlier in this piece, just 9% of the respondents said they had been blessed with a salary hike, while 58% stated they had not received any hike. One-third said that their salaries had actually declined.
Things were worse for small entrepreneurs and businessmen. A bit more than 5% of the respondents stated their incomes had gone up even as more than 58% said that their incomes from business had not. More than 35% of the respondents claimed their incomes had declined. How can consumer sentiment be strong in such a scenario?
According to a story published in Mint on 13 June, sales of high-end LED or ‘connected TV’ sets grew at 10% between January and April this year compared to the year-ago period but total TV sales declined by 1.2% in volume terms during the same period. Another story published on 10 June said that two and three-wheeler sales in May 2022 were down 27.3% and 44.7%, respectively, compared to the pre-covid baseline of May 2019. Only cars saw a healthy 10.6% growth in sales compared to pre-covid levels of May 2019. Yet another news report stated that smartphone shipments grew at a very modest 2% in the March quarter of 2022.
These numbers reaffirm the results of both the RBI and the CVoter Consumer Trackers, which indicate that consumer sentiment continues to be weak despite the remarkable recovery in the economy. The big worry for Sitharaman and her team is: How can India manage even a 7% GDP growth rate in the current fiscal if people keep postponing their expenditures, especially on non-essentials?
The silver lining
Fortunately, for the finance minister and the Indian economy, the same set of data that shows poor consumer sentiment at the moment also shows Indian consumers are much more optimistic when it comes to the future. The sixth and last question asked during the CVoter Tracker was: Do you think your family’s financial situation will improve in the next one year? About one in four replied ‘definitely yes’, while another one-third replied ‘maybe yes’. In effect, about 58% of the respondents were optimistic about their future. Just about 15.5% of the respondents said there was no chance of a better financial future. According to the RBI Tracker, 45.4% of the respondents said they expected their overall economic situation to improve, while 3.4% said it would worsen.
The authors confess they have a weakness for Nobel Prize winning economist Richard Thaler. We quote him yet again: “Stories are powerful and memorable. That is why I have told so many in this book. But an individual anecdote can only serve as an illustration. To really convince yourself, much less others, we need to change the way we do things: we need data, and lots of it."
Let’s hope institutions generate more and more credible data so that more news, and even opinion, is based on data rather than ideology.
Yashwant Deshmukh is editor-in-chief and Sutanu Guru is executive director of CVoter Research Foundation.