From UPSC perspective, the following things are important :
Prelims level : Consumer Confidence Survey (CCS)
Mains level : Read the attached story
The highlights of the Consumer Confidence Survey (CCS) were recently released by the RBI pointing to some all-time lows.
Consumer Confidence Survey (CCS)
- The RBI conducts this survey every couple of months by asking households in 13 major cities — such as Ahmedabad, Bhopal, Guwahati, Patna, Thiruvananthapuram — about their current perceptions and future expectations on a variety of economic variables.
- These variables include the general economic situation, employment scenario, overall price situation, own income and spending levels.
- Based on these specific responses, the RBI constructs two indices: the Current Situation Index (CSI) and the Future Expectations Index (FEI).
- The main variables of the survey are- Economic situation, Employment, Price Level, Income and Spending.
- The CSI maps how people view their current situation (on income, employment etc.) vis a vis a year ago. The FEI maps how people expect the situation to be (on the same variables) a year from now.
- By looking at the two variables as well as their past performance, one can learn a lot about how Indians have seen themselves fairing over the years.
Why does it matter?
- The CCS is a survey that indicates how optimistic or pessimistic consumers are regarding their expected financial situation.
- If the consumers are optimistic, spending will be more, whereas if they are not so confident, then their poor consumption pattern may lead to recession.
What was the main finding?
- As Chart 1 shows, the CSI has fallen to an all-time low of 48.5 in May.
- An index value of 100 is crucial here, as it distinguishes between positive and negative sentiment.
- At 48.5, the current consumer sentiment is more than 50 points adrift from being neutral — the farthest it has ever been. It is important to note that even a year ago, the CSI had hit an all-time low.
- The FEI moved to the pessimistic territory for the second time since the onset of the pandemic.
What are the factors responsible for pulling down the CSI and FEI respectively?
- The RBI states that CSI is being pulled down because of falling consumer sentiments on the “general economic situation” and “employment” scenario.
- So, on the “general economic situation”, RBI finds that there has been a largely secular decline in both current consumer sentiment and future expectations since PM Modi’s re-election in 2019.
- What is equally worse is that more people expect the employment situation to worsen a year from now — that is why the one year ahead expectation line is below the zero marks.
- These data layout the tricky challenge facing the Indian economy.
- If the government’s strategy for fast economic growth — expecting the private sector to lead India out of this trough by investing in new capacities — is to succeed, then consumer spending (especially on non-essentials) has to go up sharply.
- But for that to happen, household incomes have to go up; and for that to happen, the employment prospects have to brighten; and for that to happen, again, companies have to invest in new capacities.