Demonetisation fails to dim consumer sentiment

Despite the government taking the old high-denomination notes out of circulation and its resulting cash crunch, Indian consumers, strangely, remain gung-ho about spending. The all-India consumer sentiment index — published by the BSE, Centre for Monitoring Indian Economy (CMIE) and Survey Research Centre —stood at 104.23, up 0.51. The November monthly average was 102.89 all-India, 99.17 in urban India and 105.36 in rural India.

The index, which publishes daily consumer sentiment indices, said the increase was driven by the growth in both the constituent indices — the index of consumer expectations and the index of current economic conditions, which rose 0.55 per cent to 106.07 and 0.45 per cent to 101.35, respectively. The all-India index had fallen to 99-levels (the base value of the index is 100) in the two weeks right after demonetisation, but has since bounced back up.

The data, however, appears to be rather counter-intuitive, given that the government’s decision to ban high-value notes came right in the middle of the festival season and retailers reported a 15-20 per cent fall in sales of consumer staples and durables in November. Auto sales figures for November was a lone bright spot, with automakers reporting double-digit sales growth last month.

In fact, the fall in private consumption demand, which was widely assumed, led credit-rating agency CRISIL to shave off 100 basis points from its fiscal 2017 GDP growth estimate, brining it to 6.9 per cent.

“I don’t have the doubt in my mind that demand for many consumer goods have been affected and that many supply chains have been broken,” Mahesh Vyas, CEO, CMIE, told BusinessLine . “But households seem to be optimistic about future consumption. Especially, rural households, which see that the rabi crop is doing well. They have reason to be happier.”

The consumer sentiment survey has a rolling sample of 1,60,000 households, of which 60,000 are rural households. Of the total sample, the daily index is generated from a subset of 40,000 households. The survey includes questions on a consumer’s current status compared with a year ago, and its forecast for the coming 12 months.

“So while (households) may have curtailed their consumption for now,” Vyas continued, “they continue to remain optimistic about the future. You can see that the consumer expectations index is higher than the the index of current economic conditions. In November, the sentiment improved after a lag of two weeks after the demonetisation announcement. Also, unemployment (at 5.86 per cent) is still quite low. These two, when seen in tandem, tell us that consumers are quite okay.”