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Consumer sentiments improving but still stuck in pessimism

Context – As we draw closer to the general election, there’s an expected divergence in the portrayal of daily life by the government and the Opposition parties. For example, the government recently published a white paper on the Indian economy, asserting that the decade under the BJP (2014-24) outperformed the decade under the Congress-led UPA coalition (2004-2014). Naturally, a detailed examination of each issue can help determine which perspective more accurately reflects reality.

Farmer protests demanding MSP as a legal right

  • Let’s consider the situation of agricultural hardship and India’s agricultural economy. This week, a renewed wave of farmer protests is taking place in the capital, demanding the legal right to Minimum Support Prices (the prices at which the government commits to buying various crops).
  • By examining the most recent significant MSP announcement, we can identify any trends. For instance, in October 2023, the government declared the MSPs for wheat, India’s primary winter crop, for the current marketing year (2024-25).
  • The chart shows the yearly increase in wheat’s Minimum Support Price (MSP) since 1977, with data from the Centre for Monitoring Indian Economy (CMIE).
  • Over the past two and a half decades, MSPs have typically followed an election cycle, with higher increases leading up to elections and lower ones afterward.
  • The exception was the NDA government led by Atal Bihari Vajpayee, which barely raised MSPs before elections. In contrast, the UPA years saw significant MSP increases. However, MSPs only provide a partial view of the farm economy.
  • A comprehensive understanding would require examining various data, from incomes to inflation levels. There is also an alternative approach to consider.

Rural India low on optimism

  • Consumer sentiments, which are gauged through regular surveys, offer a comprehensive view of people’s current state and their optimism or pessimism. Recently, the Centre for Monitoring Indian Economy (CMIE) reported a significant drop in optimism in rural India.
  • In January 2024, consumer sentiments in India saw a sharp 2.2% fall, the steepest monthly decline in over two years. This fall was characterized by a significant weakening of sentiments in rural India, with a 3% drop in the Index of Consumer Sentiments (ICS), while urban India saw a smaller 0.5% fall.
  • Additionally, households’ perceptions of their current economic conditions also deteriorated in January 2024. Despite consumer sentiments largely recovering to pre-Covid levels by late 2023, the recent dip in rural sentiments is attributed to stagnant commodity prices and reduced profits.

The story of Indian consumer sentiments

  • The Reserve Bank of India (RBI) recently released its latest bi-monthly consumer confidence survey. The survey, conducted from January 2-11, 2024, covered 6,058 respondents across 19 major cities and collected their current perceptions and future expectations on the general economic situation, employment, prices, income, and spending.
  • The key metric in this survey is the Current Situation Index (CSI), which reflects how people feel about their economic situation compared to a year ago. A CSI value of 100 is neutral, with values below 100 indicating pessimism and above 100 indicating optimism.
  • Throughout Prime Minister Modi’s second term, consumer sentiment has been negative. The CSI was 104.6 in March 2019, just before the last Lok Sabha election, but fell into the negative zone in May 2019 and has remained there.
  • The highest level of consumer optimism was recorded in November 2016, when demonetisation was announced. Despite a steady recovery since the Covid pandemic, the overall index remains in the pessimism zone.

Conclusion- The state of India’s agricultural economy and consumer sentiment are critical indicators of the nation’s overall economic health. While government policies such as Minimum Support Prices (MSP) play a significant role, they only tell part of the story. Consumer sentiment surveys, such as those conducted by the RBI, offer valuable insights into the public’s perception of their economic situation. Despite some recovery since the Covid pandemic, consumer sentiment has remained in the pessimism zone for most of the past seven years.

This suggests that while there have been improvements, there is still a long way to go to restore optimism among consumers, particularly in rural areas. The upcoming general election will likely be influenced by these factors, as the public’s perception of their economic well-being plays a crucial role in their voting decisions.

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