Consumer sentiments improve

While the relatively richer and poorer households have seen their consumer sentiments spurt, the middle income households have seen slower growth in their sentiments

Consumer sentiments shot up by 6.7 per cent in the week ended March 26, 2023. This is exceptionally high. The Index of Consumer Sentiments (ICS) usually moves by a little less than one per cent in a week. In the past 60 weeks, the average weekly increase in the ICS was 0.86 per cent and the median was 0.93 per cent. In the past one year, the ICS increased by more than 6.7 per cent only twice. This is therefore a rare occurrence.

The increase in the ICS seen in the week of March 26 is entirely because of its surge in rural India. The rural ICS vaulted by 12.3 per cent. In contrast, the urban ICS shrank by 2 per cent during the week.

This 12.3 per cent increase in the ICS for rural India, however, does not help it recover entirely the ground it lost in the preceding four weeks. The rural ICS, as of March 26, is still lower than its level in February 2023. Nevertheless, the overall ICS as of March 26 was 0.8 per cent higher than the ICS of February. March 2023 could therefore be the third consecutive month of an increase in consumer sentiments in India. It could be a small increase and it could be based more on higher expectations than on current economic conditions. Improvements in future expectations had also played a larger role in the improvement in sentiments in February.

It will be interesting to see if the expected growth in consumer sentiments in March is also because of an improvement in sentiments of the richer households, as this was the source of much of the growth in the past one year. Income group-wise data for March would be available in the first week of April.

Much of the increase in the ICS in the year that ended in February 2023 can be attributed to the sustained improvement in the sentiments of the relatively richer households. In the recent couple of months, households of relatively modest earnings have also recorded handsome improvements in sentiments. Consumer sentiments of middle-income households are improving at a much slower pace.

The ICS for the high-income group households (those that have an annual income between Rs 500,000 and Rs 1 million) has generally been higher than the ICS of other income group households over the past 12 months. In fact, it has been consistently higher than the other groups for 10 consecutive months, i.e. since May 2022. The ICS of the richer households as of February 2023 was 81 per cent higher than it was a year ago, while the ICS for all income groups together had risen by only 40 per cent. The gap between the rich and the rest has widened.

The growth in ICS of high-income households is fuelled by optimism they have about the future. The Index of Consumer Expectations (ICE), which reports on expectations of the future, of this group in February 2023 was 84 per cent higher than it was in February 2022. At the same time the overall ICE grew by only 40 per cent.

The Index of Current Economic Conditions (ICC) of the richer households has also grown impressively over the past year. It rose by 77 per cent while the overall ICC increased by 40 per cent.

In the past three months, the ICS of the richer and the relatively poorer households have seen significant improvements. The richer households have seen sustained improvement since December 2022. And the relatively poorer households have seen a spurt in the last two months — January and February 2023.

Relatively poorer households are those that have an annual income between Rs 100,000 and Rs 200,000. The ICS for these households increased by 6.9 per cent in January and by another 8.1 per cent in February 2023. The cumulative increase in the ICS for this group over these two months is an impressive 15.5 per cent. This comes from a 15.6 per cent increase in the ICE of this group and from a 15.3 per cent increase in its ICC.

This spurt in the ICS of this group has helped it catch up somewhat with the other groups as earlier it was consistently significantly lower than the rest.

While the relatively richer and poorer households have seen their consumer sentiments spurt, the middle-income households – those that earn between Rs 200,000 and Rs 500,000 per annum — have seen slower growth in their sentiments. While the overall growth in the ICS over the past one year is 40 per cent, the growth in ICS for the middle-income group is 32 per cent.

During January and February 2023, while the ICS of the poorer households grew by 15.5 per cent and that of the richer households grew by 11.2 per cent, that of the middle-income households grew by only 6 per cent.

In all three income groups, improvement in consumer expectations was higher than the improvement in current conditions. This is promising.

In the analysis above, we have avoided commenting on the poorest group of households — those that earn less than Rs 100,000 and also the richest group of households —   those that earn more than a million per annum. This is because of two reasons. First, there is nothing exceptional in the movement of their consumer sentiments, and secondly, because the number of households in these two income brackets is small compared to the others.
The writer is MD & CEO, CMIE P Ltd