Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Consumer Confidence Survey (CCS) by the RBI

Note4Students

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.

Big takeaways

  • 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.
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