What Three Consumer Sentiment Surveys Tell Us About the State of the Indian Economy

The government has been touting the 8.4% real GDP growth rate as evidence of the economy recovering. A deeper examination reveals that such optimism is far from warranted.

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With the release of the gross domestic product (GDP) data for the quarter ending September 2021, the Indian government has gone into an overdrive touting the 8.4% real GDP growth rate as evidence of the economy recovering. A deeper examination of the data reveals that such optimism is far from warranted as key growth thrusters are still far from firing at full strength.

However, the data does succeed in masking the underlying trouble that will no doubt rear its head in the coming quarters unless the Union government takes substantial measures to infuse spirit in the economy.

These pain points, otherwise lost in the GDP data, are aptly captured by the C-voter survey on the state of the economy as perceived by the common man. Over 3,400 respondents polled in the survey opened up on their misgivings about their own future economic prospects. While the government is aggressively pushing the narrative that India seems to have regained its growth momentum, those at the bottom of the pyramid have deep concerns about their future spending capacity, their job security and are distressed by the prospects of a catastrophic fall in their family income.

Consider, for instance, that a little over 67% of the respondents in the C-voter survey were of the opinion that their family’s economic condition will stay the same or deteriorate in the coming year.

These findings were also echoed in the latest Consumer Confidence Survey conducted by the RBI in September. The RBI survey found that the consumer confidence index improved marginally in September to 57.7 from the July level of 48.6, but the overwhelming sentiment vis-a-vis the economy, personal spendings, income, employment and price levels remained in the negative territory. In fact, even in September 2017, when the consumer confidence index was at 95.5, it was still considered to be in negative territory. Compared to the September 2017 figure, the disillusionment on the ground – as seen in the September 2021 print of 57.5 – is overpowering.

The RBI survey polled 5,237 families across 13 major cities. Regarding the expectations on the general economic situation, 72.3% of the responses expected the economic situation to worsen. On future expectations, a little over 40% of those polled said that the economic situation will worsen in the year going ahead.

A bugbear for the government and a predominantly contentious point that the BJP can’t seem to weed out is the issue of widespread unemployment. In September, 72.4% of those polled said that the overall scenario as far as employment is concerned has worsened. Another real whammy was delivered via the expectation on price levels. An incredible 92.3% of those surveyed in September said that prices had increased and another 74.7% expected price levels to continue mounting in the coming year.

Migrant labourers on Mumbai-Ahmedabad highway as they head home in the middle of nationwide lockdown. Photo: PTI.

Not surprisingly, the C-voter survey mirrored the sentiment reflected in the RBI survey. When asked about the threat of job loss in the coming year as compared to the last year, a strong 71.5% of the respondents said that the fear of losing their job will be the same or will worsen in the coming year. When questioned on whether respondents expect their income levels to surge in the coming year, only 19.5% of those polled said they expect a rise, whereas 38.4% expected it to plummet. The gloominess is writ large when one looks at the spendings during the festive season this year. Only 19.2% of those surveyed said that they had incurred higher festive spending than the last year compared to 48.2% who said that their spendings this year were less compared to the last year.

Another survey that substantiates the doom and gloom scenario on the ground is the Centre for Monitoring Indian Economy (CMIE)’s index of consumer sentiment. This particular index measures two different parameters, namely, the state of current economic conditions and consumer expectations. The former is gauged by questions on the current household income and the likelihood of households buying non-essential items. Consumer expectations are assessed by questions on income expectations in the coming years.

Rural India is painted in a brushstroke of economic pessimism, as per the CMIE survey. In November, the proportion of households that said that their income was higher than a year ago tumbled from 14% in the week ending November 14 to 8.4% for the week ending November 28. Further, households that believed that current times are better to buy non-essentials fell to 7% in the week ending November 28 from 10% a week ago.

Obviously, rural India is tightly wrapped in economic insecurities about its future.

To understand better the dissonance between the GDP figures and the survey sentiments, The Wire reached out to economist Arun Kumar who is currently the Malcolm Adiseshiah Chair professor at the Institute of Social Sciences.

For years now, Kumar has been arguing consistently that the contribution of the unorganised sector- barring agriculture – is not being accurately assessed under the current GDP computation methodology. Data on the unorganised sector is collected once every five years and in the meanwhile, data from the organised sector is used as a proxy for the unorganised sector. This, according, to Kumar is highly flawed.

Kumar told this reporter that using organised sector data in place of data collected from the unorganised sector is problem-ridden especially in the aftermath of demonetisation, which dealt a death blow to the micro, small and medium enterprises (MSME) sector in India and oversaw the shuttering of millions of micro and small units in India. The disastrous execution of demonetisation was followed by the botched implementation of the goods and service tax (GST), which led to the shifting of economic activity and demand away from the unorganised sector to the organised sector. The twin shocks of demonetisation and GST were followed by the pandemic, which crippled the unorganised sector further.

It is in the uncaptured unorganised sector where most of the despair and disillusionment with the current state of the economy arises from and which finds a voice in the surveys.

“I have been arguing since the time of demonetisation that the GDP figures, especially the quarterly figures, are based on very limited data. The unorganised sector data is collected every five years. Last it was collected in 2015 and it should have been collected in 2020 but the data hasn’t been collected because of the pandemic. Meanwhile, the government assumes that the unorganised sector is growing at the same rate as the organised sector,” Kumar said.

He said after demonetisation, the unorganised sector has declined and the organised sector has grown. “The unorganised sector declined all the more under GST. Now in the pandemic, the unorganised sector has taken another hit. So, the government data itself is incorrect. As of now, unorganised sector data isn’t available and proxying it with organised sector data is incorrect. The government has no reply to this (contradiction). Even the CSO has no reply to this,” said the economist.

Kumar also added that the Indian economy might not get back on the recovery track anytime soon. “The government is not supporting the unorganised sector at all. Even the credit that is offered to the MSME sector is largely taken up by the medium and small industries. In the MSME sector, there are 6,000 large units, 6 lakh small and medium units and 6 crore micro-units. Around 99% of the units in MSME are micro-units, and they employ 97.5% of the workforce.”

He said the micro-units are left to their own devices and they hold the largest prospect of MSME employment. If the micro sector doesn’t revive, “then employment will remain a problem; therefore your demand will remain a problem; therefore your growth rate will never pick up”, said Kumar. Consequently, the government will only talk about the organised sector but never the whole economy.

A farmer works in his field. Photo: Jignesh Mistry/PAIGAM

What the GDP data speaks on

GDP figures for the quarter ending September at constant prices stand at Rs 35.73 lakh crore. Compared to the GDP figures of Q2 of FY20 – Rs 35.61 lakh crore, the rise vis-a-vis pre-pandemic scenario is a measly 0.3%, which again lays bare the fact that BJP’s economic recovery narrative is predicated on weak numbers.

The September results also shine a light on the Private Final Consumption Expenditure (PFCE), and how this particular engine of the economy is sputtering on low fuel. The PFCE is a barometer that captures expenditure incurred by households on the consumption of goods and services.

Clocking in at Rs 19.48 lakh crore, it still lags behind by around 4% compared to the September quarter of FY20. Additionally, the September quarter PFCE figures of FY20 pale in comparison to the preceding three-quarter figures. The point is that the Indian economy as far as consumption is concerned was on the downslide even before the pandemic appeared. Comparing the latest figures to the pre-pandemic quarter does not truly capture the real destruction of the consumption appetite that has been in the works for years now and the situation is exacerbated further with the impositions of lockdowns during the pandemic.

Overall, this particular metric has been on a downward slope since 2014. CMIE data states that PFCE growth that once averaged at 16.2% during the 2010-14 phase, stumbled to 12.1% during 2014-17 and then to 10.5% during 2017-20.

In fact, per capita, PFCE for the year 2020-21 has flattened to Rs 55,783 which is substantially lower than the per capita PFCE of Rs 59,415 recorded in FY19 and at par with the Rs 55,789 recorded in FY18.

Also Read: Shadows of the Pandemic: What the Latest GDP Numbers Tell us about the Nature of India’s Recovery

Tanking household income and rampant unemployment

The fall in the growth rate of PFCE ties in neatly with the corresponding fall in income levels of households and rising unemployment figures. The dramatic toppling of per capita PFCE and its regression back to the FY18 levels indicates that there has been a strong ratcheting of poverty levels along with a fall in the standard of living. The Modi government needs to push the pedal on arresting employment figures and shore up the economy by ensuring that consumption resumes in the economy at the same pace as it was during the pre-pandemic phase, if not higher.

However, the ground reality is humming a different tune. In a recent study, Santosh Mehrotra, a research fellow at the IZA Institute of Labour Economics in Bonn, Germany and his colleague, Jajati Keshari Parida, state that a whopping Rs 7.6 crore people have slipped into poverty between 2012 and 2020. This state of affairs is further compounded by the fact that there is a reverse migration of labour from factories to farms. The total share of employment in agriculture rose from 42.5% in FY19 to 45.6% in FY20. This small 3 percentage point increase translates into a backward movement of close to 1.2 to 1.3 crore workers back to agriculture from manufacturing or service-oriented jobs.

Contrast the period with the 2004-05 and 2011-12 period, when the number of people operating in poverty fell by a sizable 137 million or close to 20 million a year. The said period has been the high growth phase of Indian economic history where the nation’s GDP grew at an average of 8% per annum.

Secondly, another parameter, the Government Final Consumption Expenditure (GFCE), is tanking. The total expenditure incurred by the government under this label for the latest quarter seems to be at Rs 3.61 lakh crore. This figure falls 17% short of the GFCE in Q2 of FY20 and 8% short of the expenditure incurred in Q1 of FY20. At a time when demand and consumption are plummeting, it is incumbent on the government to step up on the spending front. A fall in GFCE at this critical juncture will only serve as a roadblock to growth.

Lastly, inflation is emerging in the global macroeconomic scenario and is not going to be transitory as expected by many economists. In October, India’s wholesale inflation hit a five-month high of 12.54%. Retail inflation also rose 4.48% in October translating into higher prices for fuels and edible oils. India’s high WPI is in keeping with the supply-chain crisis that has bumped up the manufacturing costs for FMCG, electronic, cars, chemicals, capital goods manufacturers. Contrary to earlier expectations, companies are now passing on the elevated input costs to consumers further choking discretionary spendings in India.  With consumption sentiment already touching rock bottom, prospects of an inflationary economic environment spell tough times ahead for the common man.