If economy is really growing 7.4%, why is Consumer sentiment at 3-year low?
Indian consumers are turning increasingly pessimistic about the economic recovery. The MNI India Consumer Sentiment Indicator, from Deutsche Borse, fell to a three-year low in September, suggesting that demand continues to be lacklustre. That sentiment is completely out of sync with the rosy estimates of gross domestic product (GDP) growth. The survey shows that not only are consumers worried about current conditions, they also don’t expect any improvement in the medium term.
“Seen through the eyes of our survey respondent. the short- to medium-term outlook looks less compelling, with consumer confidence at a record low and little sign of a quick turnaround, ” said MNI chief economist Philip Uglow.
Simply put, the 75 basis points rate cut that happened from January to September wasn’t good enough to boost demand and convince consumers that things will improve. One basis point is one-hundredth of a percentage point.
It’s not just consumer sentiment that is pessimistic. Expectations for business conditions improving one year from now fell to their lowest since September 2013, when India was battling a sharply depreciating rupee. Besides, consumers were the least optimistic about their household finances, with both current and future measures of personal finances falling to record lows.
This level of pessimism ties in with other indicators as well. For instance, the Nikkei Purchasing Managers’ Index (PMI) for India shows there has been no improvement in manufacturing employment since the Narendra Modi government took charge at the Centre.
In September-end, the Reserve Bank of India (RBI) cut rates by another 50 basis points to boost demand. It remains to be seen whether it will boost the much-needed confidence.
“So far the rate cuts have had little impact, with consumers particularly concerned about their finances. The recent cut in the policy rate by RBI should help, although for now our survey suggests that household spending will remain capped,” said Uglow.