Covid-19 second wave compounds misery of Indian households
Owing to skyrocketing prices of petrol and diesel, people have cut down on health-related expenditure
The Covid-19 pandemic has affected the lives of almost everyone on this planet. People are facing unexpected and unprecedented situations, both on personal as well as professional fronts. Presently Indian households are facing problems caused by mainly three factors — rising inflation, medical emergencies amid the pandemic and income uncertainty as well as job loss. The central government data suggests that the economy is in the nascent stage of recovery, but the distress that is being faced by the Indian households hasn’t been captured in its entirety.
Retail inflation slipped in June, but its true impact hasn’t been checked so far. After Covid-19 restrictions were lifted, certain proprietary growth indicators showed a surge in business activity in June. Credit card transactions increased and as per ICICI Securities there was a 22% surge in Point of Sale (PoS) and e-commerce in June as compared to May. Such figures are indicative of the fact that households have bounced back from the reverses faced due to lockdowns last year, but it may not always hold true.
Reality bites
If we dig deeper, the picture could be different. Even though the overall effect of the pandemic on businesses and the economy may have been subsiding, the distress of households may deepen post the second wave.
According to a report by SBI, the number of districts with deposits outflows during the second wave stood at almost twice of what it was during the first wave. There was a dip in household savings rate in the December quarter as compared to the previous two quarters. The rate dropped to 8.2% (Dec) from 21% and 10% in the previous two quarters, and this doesn’t necessarily point to discretionary spending. There are chances of households using this money to meet emergency spending and to make up for the dent caused in income due to the pandemic.
Tight spending
An analysis of card-based transactions by SBI Cards and Payments Services reveals another trend. Owing to skyrocketing prices of petrol and diesel, people have cut down on health-related expenditure to accommodate the disruption caused by these fuel prices in their budgets. This indicates that households have failed to increase overall spending and have only switched to spending in certain categories.
Indian households are also cutting on regular expenditure to meet the sharp rise in fuel prices. The card spends data of SBI Cards and Payment Services Ltd show that spending towards health has reduced to adjust the increase in fuel prices.