Consumer confidence falls, economy may contract by 1.5% in FY21: RBI

Consumer confidence has collapsed amid the coronavirus pandemic and it may result in contraction of the economy by 1.5 per cent during 2020-21, surveys released by the Reserve Bank showed on Thursday.

"Consumer confidence collapsed in May 2020, with the Current Situation Index (CSI) touching historic low and the one year ahead Future Expectations Index (FEI) also recording a sharp fall, entering the zone of pessimism," as per the Consumer Confidence Survey (CCS) released by the RBI.

According to another survey, GDP during the current financial year is likely to contract by 1.5 per cent, though the next fiscal is expected to be much better.

"Real gross domestic product (GDP) is likely to contract by 1.5 per cent in 2020-21 but is expected to revert to growth terrain next year, when it is likely to grow by 7.2 per cent," said the Survey of Professional Forecasters (SPF) sponsored by the RBI.

Real private final consumption expenditure (PFCE) is expected to decline by 0.5 per cent during 2020-21 but likely to record 6.9 per cent growth next fiscal, the survey said.

It added that real gross fixed capital formation (GFCF) is likely to register negative growth of 6.4 per cent in 2020-21 but is expected to grow by 5.6 per cent in 2021-22.

Real gross value added (GVA) is expected to decline by 1.7 per cent this fiscal but record 6.8 per cent growth in 2021-22, supported by uptick in industrial and services sector activities, said the SPF survey based on response of 24 panellists.

According to the CCS, consumer perception on the general economic situation, employment scenario and household income plunged deeper into contraction zone, while expectations on general economic situation and employment scenario for the year ahead were also pessimistic.

"Overall consumer spending remained afloat, mostly due to relative inelasticity in essential spending ; consumers, however, reported sharp cuts in discretionary spending and also do not expect much improvement in the coming year," it added.

In view of the Covid-19 pandemic, the survey was conducted through telephonic interviews during May 5-17, 2020 in 13 major cities, including Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Lucknow, Mumbai and Patna.

Perceptions and expectations on general economic situation, employment scenario, overall price situation and own income and spending were obtained from 5,300 households.

A third study on 'Households' Inflation Expectations Survey' said households' median inflation perception and expectations increased sharply in May 2020 as compared with the March 2020 round of the survey.

Participants were expecting increasing price pressure on food products. More households expect general prices and inflation to rise over a three-month horizon as compared to the previous round.

A total of 5,761 urban households participated in the survey.