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Home >Opinion >Views >Pandemic’s impact on consumer spending is widespread, deep and long lasting

The pandemic, which started as a public health emergency not seen in ages, quickly transformed into a supply shock, and then to a private consumption contraction on an unprecedented scale. A weekly survey in April by Bain and Company and People Research on India’s Consumer Economy (PRICE), of about 500 households across different locations and economic strata, revealed that consumer sentiment and demand are undergoing a steady and deep decline.

Within two weeks into the nationwide lockdown, nearly 40% of households started reporting a week-on-week decline in consumption. While low-income households felt the income impact early on, more affluent families pointed to a lack of access as the biggest spending constraint, as most shops were closed. According to a Nielsen report in April, traditional trade and e-commerce respectively, saw a week-on-week decline of about 8% and 64% in the last week of March.

After about five weeks of the lockdown, more than half of Indian households are showing week-on-week reduction. It’s not just the spread that’s wider, the causes are different too. About 60% households now attribute this decline to reduced or uncertain income, and 1 in 4 households anticipate future financial stress.

Households are also less optimistic about recovery. In the first week of April, nearly 60% households were expecting to return to financial normalcy within two months. By the third week, this number had fallen to 40%, with almost a third of all respondents anticipating financial recovery to take six months or more.

This change over the last three weeks has not been uniform. Lower-income households have faced the brunt of this impact from the first week and this has worsened with every passing week. Even the high-income households (annual income greater than 27.5 lakh) which were relatively insulated to begin with, are now starting to see a substantial impact. This is likely to result in upper-middle and high-income households increase their savings and curtail expenditures in anticipation of future financial stress.

The consumption decline hasn’t been uniform across categories, either. While essentials like staples, groceries and household hygiene supplies are still seeing a growth in consumption week-on-week, semi-discretionary and discretionary categories like baby and childcare, beauty, apparel, footwear and entertainment (malls, multiplexes) have been severely hit.

This is alarming as spends on these categories constitute more than half of the overall basket, even for lower-middle and low-income households, with their proportion as high as about 67% for high-income households. These spends are likely to stay subdued till the financial situation improves.

Spatially, rural households seem relatively less affected and more optimistic. About 40% of them have seen a reduction in consumption, as compared to 53% of their urban counterparts. They are also expecting a faster recovery, with more than half of them expecting their households to return to financial normalcy within two months, as compared to a third of urban ones.

Online consumption has risen. While a third of all households increased their share of online purchases, 16% made online buys in new categories like grocery, household hygiene and about 8% bought products online for the first time.

In a country that has over 50% households where the chief wage-earner is self-employed and another 20% that depends on casual labour, this crisis cannot be addressed just by health-based precautions. Income support for the disadvantaged is necessary. Private consumption contributes to 60% of the GDP, and consumer sentiment and spending over the next months will determine how soon India makes a full recovery.

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