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Indian consumer's pessimism hurdle for RBI bid to reverse economic slowdown

Consumption, which contributes nearly 60% to GDP, has been largely hurt by a shadow banking crisis

Anirban Nag | Bloomberg 

Liquidity management tool: RBI may have to balance old norms with the new

If India’s central bank is banking on the consumer to revive the economy, it might be in for some disappointment.

Consumer confidence in India dropped further in July, as people grew more pessimistic about jobs and slowing growth in Asia’s third-largest economy.

That possibly explains the central bank’s unprecedented move on Wednesday. It lowered the benchmark interest rate by an unconventional 35 basis points, its fourth reduction this year to support a slowing economy. Consumption, which contributes nearly 60 per cent to GDP, has been largely hurt by a shadow banking crisis, and that in turn has dragged growth down to a five year low.

The current situation index fell to 95.7 from 97.3 in May, according to the Reserve Bank of India’s consumer confidence survey, where 100 is the dividing line between pessimism and optimism. The future expectations gauge fell to 124.8 in July from 128.4, suggesting waning optimism.

“Consumers’ perceptions on the general economic situation and the employment scenario softened, while their assessment of their own incomes turned out to be less optimistic than in May 2019,” the central bank said, adding that respondents were likely to keep a leash on discretionary spending.

The RBI’s consumer confidence survey was conducted in 13 Indian cities and was based on responses from 5,351 households.

First Published: Thu, August 08 2019. 17:19 IST