Rural sentiments upbeat in November

Rural India performed quite well in November. The labour participation rate inched up and the unemployment rate dropped. As a result, the employment rate increased from 37 per cent in October to 37.5 per cent in November 2022. The employment rate is the most important labour market indicator and its increase indicates that a larger proportion of the working age population is employed. Even a small increase in the employment rate translates into millions of jobs. For example, the 0.5 percentage point increase in November led to the addition of 4.3 million jobs in rural India.

Urban India did not do as well because while the labour participation rate increased, the unemployment rate also increased and as a result, the employment rate rose only marginally from 34.2 per cent to 34.4 per cent in November 2022.

The Index of Consumer Sentiments (ICS) shows a similar difference between rural and urban India’s performance in November, although the divergence is larger in the case of consumer sentiments. The ICS fell by 1.5 per cent in urban India while it increased by 0.5 per cent in rural India. The overall ICS fell by 0.2 per cent.

The fall in the ICS in November 2022 comes after two months of robust increases. The ICS had risen somewhat sharply, by 11.4 per cent, in the preceding two months, which were the major festival months in India. A correction after the festivities is understandable. Interestingly, the correction is small (0.2 per cent) compared to the rise (11.4 per cent). It is good to learn that consumer sentiments in India consolidated almost all the gains made during the festival months of 2022.

The consolidation of consumer sentiments in November rests upon an expectation that the economy will do well in the near- and medium-term future. This is particularly true of rural India. Interestingly, it seems to depend less upon this expected improvement in the economic environment translating into a corresponding improvement in personal well-being. Households have scaled down their expectations of an increase in their incomes in the future. They have also reported a correction in their current economic conditions.

The Index of Current Economic Conditions (ICC) declined by 1.6 per cent in November. The fall was rather sharp in urban India where the ICC receded by 3.1 per cent. Rural ICC also contracted but more modestly.

Perhaps, one of the most useful components of the ICS is the perception of households regarding the purchase of consumer durables. This indicator held up well, in a way, even after the festive season had passed. The proportion of households that said in November 2022 that it was a better time to buy consumer durables was 18.6 per cent. This is a tad better than the 18.4 per cent proportion in October 2022. The proportion was 16.2 per cent in September and much lower before that.

Rural areas held up better than urban regions. Rural India has sustained the momentum of increasing positivity. The proportion of households that stated that it was a better time to buy consumer durables increased from 16.5 per cent in October to 18.2 per cent in November 2022.

However, the enthusiasm to buy consumer durables is higher in urban India than in the rural regions; 19.5 per cent of urban households believed that November 2022 was a better time to buy consumer durables than November 2021. This is higher than rural India’s 18.2 per cent.

But, at the other end of the spectrum of consumers were those who said that November 2022 was a worse time than November 2021 to buy consumer durables. Their count has also increased. So, the improvement in perceptions to buy consumer durables is not across the board. The middle space — those who think it is neither a better nor worse time to buy consumer durables — has shrunk.

The proportion of households who believe that it was a worse time to buy consumer durables compared to a year ago had fallen sharply from over 33 per cent in August and September 2022 to 29 per cent in October. In November, it inched up again to 31 per cent. This is a significant jump but it is still clearly lower than the levels of August and September. It is possible that the enthusiasm to buy consumer durables in these households was strongly associated with the festival season, which scaled back a bit after the season.

Perceptions regarding incomes compared to a year ago have corrected a bit in November 2022 compared to October. Similarly, perceptions regarding household incomes a year into the future have also corrected. However, as seen in the discussion above, none of this impacted the increase in people who believed that this was a better time to buy consumer durables.

The ICS seems to have sustained its elevated levels after the festival months partly because of the wedding season that has commenced. This is expected to last for a few months and could keep the demand for consumer durables elevated. Rural India also holds out a promise because the rabi crop sowing seems to be progressing well. Higher output along with the elevated prices for most agricultural produce bodes well for the hinterlands. The rural Index of Consumer Expectations was up by 1.9 per cent in November 2022. This was the biggest contributor to the ICS holding up in November.