Non-essential spending by households to shrink further in 2021: RBI survey

More families expect general price rise in next one year

Consumer confidence remained low this November compared to a year-ago period and the non-essential spending is expected to contract further in 2021, according to a survey by the Reserve Bank of India (RBI).

 

Last month, the RBI conducted the Consumer Confidence Survey (CCS), covering over 5,300 households in 13 cities.

 

According to the survey, weak confidence could be attributed to consumer sentiment towards the general economic situation, the employment scenario, price levels, and household incomes.

 

Households remain optimistic about the situation one-year ahead, with the future expectations index (FEI) remaining in growth terrain. Respondents reported higher essential and overall spending, though discretionary expenditure contracted.

 

Another forward-looking survey, the Inflation Expectations Survey of Households (IESH), showed more households expected general prices to rise in the next three months and also in the one-year ahead period. But, the share of respondents expecting higher prices for non-food products came down marginally.

 

The median inflation expectations for three months and one-year ahead moderated by 30 basis points and 20 basis points, respectively, though they remained at an elevated level. The RBI’s inflation survey covered 5,897 urban households in 18 cities in India in October-November.

 

The survey of professional forecasters (SPF), another forward-looking exercise, indicated India’s real gross domestic product (GDP) is likely to contract 8.5 per cent in 2020-21 (the economy will likely recover in 2021-22 to grow at 9.5 per cent). The growth projections for both the years (FY21 and FY22) were revised upwards.

 

The real private final consumption expenditure (PFCE) is assessed to contract 9.7 per cent during 2020-21, followed by an expansion of 9.9 per cent in the next year. The real gross fixed capital formation (GFCF) is projected to record a decline of 19.1 per cent in 2020-21, and grow by 12.2 per cent in 2021-22, the SPF showed.