Disparate and slow recovery of sentiments

After over two years since the devastating lockdown of March-April 2020, the Index of Consum­er Sentiments (ICS) is still sign­ificantly lower than its pre-lockdown level. The ICS of May 2022 was 35.7 per cent lower than its level in February 2020. Households have suffered a lot more than can be gauged by the usual economic indicators like GDP growth.

The recovery has been uneven. Enterprises reaped record profits and the government benefited by collecting record taxes. But, households struggled to see their nominal incomes recover to their pre-pandemic levels. Average household income in January 2022 was just 3.1 per cent higher in nominal terms than its January 2020 level. The consumer price index rose by 11.4 per cent during the same period. Real household income, therefore, remained much lower than its level before the lockdowns. This is a severe hit to households.

It is not surprising, therefore, that consumer sentiment continues to be seriously bruised. Household perceptions of their own well-being and expectations of their future continue to be worse than they were before the lockdowns.

Consumer sentiments have been recovering, but at a very slow pace. Worse still, this recovery has been decelerating in rec­e­nt months. Further, this recovery is skewed in favour of the rich.

Between June 2020, when the recovery began, and May 2022, the average monthly increase in the ICS was 2.2 per cent. The median monthly increase was also 2.2 per cent. In January and February 2022, the growth was distinctly higher at 4 per cent and 5 per cent, respectively. Then it fell to 3.7 per cent in March, 3 per cent in April and 0.8 per cent in May. This is the slowing of the recovery process.

June 2022 might do better, but it is unlikely to reflect any significant improvement in sentiments.

The 30-day moving average ICS as of June 26 was 1.3 per cent higher than its level as of May-end. The last four days of June are unlikely to change this position much. The June 2022 ICS may be about 1.3 per cent higher than the level in May 2022.

This looks like a recovery from the falling growth trend and the abysmally low 0.8 per cent growth recorded in May. But, the trend seen during the four weeks of June does not reinforce such a belief. Much of the growth of the ICS in June is derived from the nearly 9 per cent jump recorded in the first week. After that the index fell by 1 per cent in the second week and recovered by 1.3 per cent in the third week. But, in the week ended June 26, the ICS fell by a substantial 2.1 per cent. This yo-yo weekly growth does not support the recovery argument.

Household expectations from the future are muted. This is, perhaps, understandable. Job prospects are not getting any better for the vast majority. The recent Agniveers episode was bad optics for young hopefuls. Inflation has been high and interest rates have been rising. The southwest monsoon got off to a patchy start and kharif sowing is delayed. None of this bode well for households that have still not recovered, in real terms, from the lockdown blow.

While the ICS as of June 26 was 1.3 per cent higher than its level in May 2022, the Index of Current Economic Conditions (ICC), which reflects current conditions of households, had done much better, having scaled up by 2.7 per cent. Growth in the Index of Consumer Expectations (ICE), which reflects expectations, was muted. It grew by only 0.4 per cent.

Poorer households have seen a much slower recovery in consumer sentiments compared to the well-off households. While the overall ICS in May 2022 was 35.7 per cent lower than its pre-pandemic level in February 2020, the ICS of households with incomes less than Rs 100,000 per annum was 46 per cent lower.

The pace of recovery of the ICS was directly proportional to the income levels of households. The ICS of households with an annual income between Rs 100,000 and Rs 200,000 was 40.4 per cent lower; those with incomes between Rs 200,000 and Rs 500,000 per annum saw the ICS fall by a lower 31.2 per cent; and those with incomes between Rs 500,000 and Rs 1 million per an­num saw the ICS fall by an even lower 30.7 per cent. The lowest fall in the ICS is of households with the highest income bracket of more than Rs 1 million per ann­um. The ICS of these households in May 2022 was 25.2 per cent lower than in February 2020.

This income disparity in consumer sentiments got sharper in May 2022. The overall ICS had grown by 0.8 per cent in the month. However, the lowest rung saw sentiments decline by a substantial 8.2 per cent and the next rung saw their ICS shrink by 3.2 per cent. Only households that earned more than Rs 200,000 per annum recorded an increase in ICS in May. The ICS of households with an annual income between Rs 200,000 and Rs 500,000 increased by 2.4 per cent.

Richer households reported much higher growth in ICS in May 2022. Those with incomes between Rs 500,000 and Rs 1 million per annum saw their ICS jump up by 18 per cent, and those with annual income in excess of Rs 1 million saw their ICS go up by 19.4 per cent.

The slowing down of consumer sentiments can delay the recovery in private final consumption expenditure and the disparity in its recovery has implications on the nature of the recovery.

The writer is MD & CEO, CMIE P Ltd