Consumer confidence hits an all time low: RBI survey

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Adding to the string of weak macro data points due to the Covid-19 pandemic, Indian consumers’ confidence has now plummeted to a record low, as per the Reserve Bank of India’s latest survey.

Consumer confidence has been in negative territory since July 2019 and has now dropped to 48.5 in May, the index’s all-time low.

The RBI conducts this survey every couple of months by asking households in 13 major cities – Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Mumbai, Patna, and Thiruvananthapuram— about their current perceptions and future expectations on a wide variety of economic variables.

These variables include general economic situation, employment scenario, overall price situation, own income, and spending levels. The current survey was conducted from April 29 to May 10 across 13 major Indian cities.

What are CSI and FEI?

The survey maps two indices – the current situation index (CSI) and two, future expectations index (FEI). The CSI maps how people view their current situation (on income, employment, etc.) vis-a-vis a year ago. The FEI maps how people expect the situation to be (on the same variables) a year from now.

The current situation index (CSI) fell to a record low of 48.5 in May from 53.1 in March. An index value of 100 is crucial here as it distinguishes between positive and negative sentiment. In other words, more than 50% of the respondents felt that they are worse off at present in comparison to a year ago.

What has led to consumer confidence taking a hit?

The RBI believes CSI has hit a record low because of two factors — general economic situation and the employment scenario.

The RBI survey mentioned, “Household spending also weakened in the latest survey round which cited consumers’ concern about the economic situation and job prospects. Even essential spending was “showing signs of moderation while non-essential spending continues to contract.”

The future expectations index (FEI) also moved to the pessimistic territory for the second time since the onset of the pandemic. The survey points that this was driven by a sharp fall in expectations on the general economic situation, employment scenario, and household income over a one-year horizon. This means more respondents believe that their current income is worse than what it was a year ago.

Other findings of the report suggest that an overwhelming proportion of Indians are finding that the inflation rate has increased over the past year and might get worse. It also indicates that spending on non-essential items such as leisure travel, eating out, luxury items, etc. has also slipped.

Experts say this is bad news for an economy primarily driven by consumption. A collapse in consumer sentiment will affect aggregate demand and therefore economic recovery. This also magnifies the need for policy intervention to boost confidence.