Home >Money >Personal Finance >Covid-19 dampening consumption can have long-term implications: Report

The fact that covid-19 has impacted consumption is obvious. As consumers, we have been forced to change our lifestyles and habits because of the dual effects of the pandemic: the need for social distancing and economic uncertainty. While the first has cut down footfalls at malls and restaurants, the latter has caused people to rethink all spending decisions because of the job losses and pay cuts, as well as making them worried about their financial future.

The direct impact of this can be felt in the observable patterns in the way people spend and save. A recent report by credit scoring firm CreditVidya revealed that consumption by value in May was 34% lower than the pre-covid-19 average levels in the fourth quarter of the financial year 2019-20. Here are a few key findings from the report and what they indicate for the future of Indian’s consumption ecosystem.

Dampened sentiment

The report divides Indian consumers into three segments: the affluent, who make up around 10% of the population (those with an income of over 60,000 per month), the mid-market, who make up around 20% of the population (those with an income between 60,000 and 20,000), and the mass market, who make up 70% of the population (those with an income below 20,000).

According to the report, while overall consumption has seen some signs of recovery, with levels rising 19% from April, consumption in the mass market segment continues to be 40% below the pre-covid-19 levels. According to Abhishek Agarwal, chief executive officer, CreditVidya, this is because this section is still struggling to cover the basics such as putting food on the table.

The mid-market consumption trend shows that the level is still 21% below the pre-covid levels, despite having risen by 11% over April. Perhaps, the least affected is the affluent segment, which recorded a consumption level 17% lower than the pre-covid levels.

Tied to income

According to Agarwal, this fall in consumption is a direct result of income trends, among other things. “The mid-market segment’s income has been significantly impacted because many of them earn a living from micro, small and medium enterprises (MSMEs), which have been the hardest hit. This is especially true in tier I and III cities," he said, adding that the mid-market segment is the aspirational class that has been driving consumption and credit growth over the past years.

The report showed that earnings were 32% below the covid-19 levels. While mass-market incomes were hardest hit, remaining 37% below the pre-covid levels and mid-market income was hit by 17%, the affluent segment’s income suffered the least at staying 10% below the pre-covid levels.

“While the affluent segment might be careful about their spending decisions temporarily, they have enough of a surplus to return to normal," said Agarwal.

Agarwal predicts that covid-19-related setbacks and uncertainty will take a toll on the economy going forward, especially on the mid-market population. While there seems to be no immediate solution in sight for the pandemic, being a consumption-driven economy, India stands to suffer serious consequences in terms of economic impact if this concern is not dealt with.

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