Households have not recovered

'We are today worse off today compared to where we were two years ago by as much as 43 per cent,' notes Mahesh Vyas.

Of all the fast-frequency economic indicators, recovery in consumer sentiments from the pandemic-induced economic shock has been the worst. It has been excruciatingly slow and uninspiring.

The index of consumer sentiments in November 2021 was 16.1 per cent higher than it was during the pandemic-affected November 2020. What is important is that it was a substantial 43 per cent lower than it was during the pre-pandemic month of November 2019, or in fiscal 2019-20.

No other indicator has been as sluggish in recovery. But, perhaps, no other economic indicator is as important as the consumer sentiments index. This is so because it reflects the well-being of households -- their perceived growth in income, their expectation of future income streams and their propensity to spend beyond mere essentials.

Economic growth is supposed to deliver on these counts and not just on tax collections or freight movement or foreign trade. Even employment is not an adequate measure of economic well-being.

Employment with depressed wages is not what growth is supposed to deliver. What matters, at the least, is growth in real income of and spending by the people.

Evidently, India's performance on these counts is dismal. The best measure of well-being tells us that we are today worse off today compared to where we were two years ago by as much as 43 per cent.

The index had reached its nadir in May 2020, when it was over 60 per cent lower than the 2019-20 level. From there, it has scaled back 44 per cent. But, that's only half way to a full recovery. Only investment intentions are as bad as this in their recovery record from the pandemic so far.

Unlike most other fast-frequency economic measures, there is no V-shaped recovery in consumer sentiments.

In November, 39 per cent of the households reported that their income was lower than it was a year ago, and 37 per cent expected their income a year ahead to be worse than their current income.

Only 6 per cent of the households believed this was a better time to buy non-durables compared to a year ago compared to the over 50 per cent who believed this was a worse time.

This despondency reflected in poor expectations, and the concomitant reluctance to spend is the biggest challenge to India's recovery from the pandemic-induced restrictions that led to the great economic slowdown in 2020.

There has been some improvement in consumer sentiments post the second wave. The index of consumer sentiments has risen by an impressive 26 per cent from its level in June. Each of the months since then has seen the index rise higher.

Consumer sentiments have been improving steadily. July saw a big increase of 11 per cent and September saw another jump of 8 per cent. Other months have seen 1-2 per cent increases. The increase in November was a meagre 1.2 per cent. The pace of increase has slowed down but growth has been maintained in every month nevertheless.

This recent growth has been significantly uneven. Rural India saw a much faster improvement in sentiments compared to urban regions. The index of consumer sentiments grew by 18 per cent in urban India between June and November 2021. It grew by a much faster 30 per cent in rural India in this period. With this, the gap between rural and urban sentiments has widened.

What is remarkable about this starkly divergent improvement is that even the better-off regions are significantly worse off than they were before the pandemic struck India.

Rural sentiments in November 2021 were 40 per cent worse than their level in 2019-2020. In urban regions, sentiments are 49 per cent lower than in 2019-2020.

In spite of the substantial growth in consumer sentiments in rural India in recent months, less than 10 per cent of the households reported that their incomes in November were higher than they were a year ago; 37 per cent stated that incomes were worse than a year ago; and more than half did not see any change in their incomes.

A bigger problem is that less than 9 per cent of the households expected their incomes to improve in the coming year and less than 6 per cent believed that this was a better time to spend on non-essentials.

Possibly, the menacing Covid virus, the feared farm laws and the brutalisation of a peaceful protest against the laws had dampened the spirits of rural India. These are now mostly resolved and hopes can be raised about a better future in rural India.

The low spirit in urban India, however, is a more vexing problem. Only about 8.5 per cent of the households report income levels that are better than a year ago and even lesser expect these to improve in the coming 12 months.

Even fewer, about 6.5 per cent, expect economic conditions in general to improve over the next one year or even five years. As a result, less than 6 per cent of the urban households feel that this is a better time to buy non-essentials.

Given that vaccines against Covid are relatively easily available, the greatest uncertainty to renewed growth and optimism is behind us. But the scars the pandemic-related episode left on the economy -- principally, low labour force participation rates and low household incomes -- are yet to heal.

Mahesh Vyas is MD & CEO, CMIE P Ltd.

Feature presentation: Mahipal Soni/Rediff.com