Consumer sentiments fall short

Consumer sentiments improved by a marginal 1.2 per cent in March 2023. This is a small increase compared to the 4 and 5 per cent increases registered in January and February, respectively. The increase also seems to be a bit of a struggle. The increase in the overall sentiments is not a reflection of mild all-round improvements. It is a mix of some vigour in urban regions and significant indifference in rural India. Most importantly, while expectations and current incomes seem to have improved, the intentions to spend on consumer durables have not. We deal with this reticence first.

The very pertinent indicator of an impending turnaround of the economy is when more households feel enthused to spend more on discretionary goods and services. This indication of a turnaround continues to remain elusive.

During March 2023, 24 per cent of the households stated that it was a better time to spend on consumer durables than it was a year ago. This is a big improvement over a year ago in March 2022 when only 10.5 per cent of the households stated that it was a better time to spend on such expense heads. But, a larger, 31 per cent of the households believed that it was a worse time to spend on consumer durables compared to a year ago. As a result, on a net basis, 7 per cent of the households still believe that this is not a better time to spend on durables.

This net negativity on households’ inclination to spend on discretionary goods is disappointing because all indicators that could lead to a positive outcome are in place. Other indicators are household incomes and expectations of future incomes, and expectations of the business and economic environment over the short and medium term.

For the first time after the Covid-19 shock in April 2020, on a net basis, households stated that their incomes were higher than a year ago. In February and in March 2023, 25-26 per cent of the households stated that their incomes were higher than the year-ago level and only 21-23 per cent stated their incomes were lower. Thus, on a net basis, over 3 per cent of the households stated that their incomes were higher than a year ago.

Expectations of household incomes a year later turned positive in March 2023 for the first time since April 2020. Twenty-five per cent of the households stated that they expected their incomes to be higher a year later and only 21 per cent expected income to worsen.

According to 24 per cent of the households, the financial and business conditions are expected to improve over the next 12 months while 22 per cent expect such conditions to worsen. On a net basis, 2 per cent of the households expect an improvement. Households turned positive on this count in February 2023 when 2.5 per cent of the households on a net basis were positive.

Households turned positive on a five-year horizon as well in February and continued to remain so in March. The net positivity percentage was small at 0.4-0.5, but it is still a net-positive position for the first time since April 2020.

If, on a net basis, households state that their incomes have improved and they also believe that their incomes are expected to improve in the coming year and the business and economic conditions are expected to improve, then conditions are generally ripe for households to also consider this to be a good time to spend on discretionary goods and services.

However, households remain slightly reticent on this count. As stated earlier, on a net basis 7 per cent of the households do not think this is a good time to buy consumer durables.

This restraint on discretionary spending runs across rural and urban regions although in March it seemed a bit more pronounced in rural regions where, on a net basis, 8 per cent of the households did not believe that this was a good time for such spending. In urban India, a smaller 4 per cent of the households were, on a net basis, similarly circumspect.

Consumer sentiments in urban India have improved quite substantially during the January-March 2023 quarter. The Index of Consumer Sentiments for urban India rose by 3.6 per cent in January, then by 6.4 per cent in February and by another 4.1 per cent in March. In contrast, the rural index rose by 4.5 per cent in January and then by 5.2 per cent in February before shedding 0.2 per cent in March.

Urban households reported better results compared to the hinterlands on all counts — incomes compared to a year ago, incomes expected over the following year, expectations of business and economic conditions over a year as well as over a 5-year period. They also do better than rural households on intentions to buy consumer durables. Yet, this wasn’t good enough to turn the urban households positive on spending on consumer durables.

It may be worth considering that rural sentiments are subdued because of adverse weather conditions and the prospects of an El Nino effect in the coming summer. Reports suggest that the rabi crop has not been affected but the depressed sentiments could suggest greater stress than the reports indicate.

A more sustained improvement in incomes and expectations could help households turn more positive towards spending on discretionary expense heads.