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Business News/ Opinion / Quick Edit/  The persistence of gloom
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The persistence of gloom

RBI's consumer confidence index, at 55.5 in January, has shown only a mild rise over November's figure and its historic September low, but people's year-ahead outlook is brightly above the neutral mark of 100. Inflation fears loom, though, and for good reason

Indian households are watching their wallets. Photo: Premium
Indian households are watching their wallets. Photo:

Consumer confidence remained poor in January, but showed a slight rise over November, with popular perceptions of our general economic situation and jobs scenario staying net negative, though not as gloomy as found by the previous round of our central bank’s bi-monthly survey of households. The Reserve Bank of India's (RBI's) Consumer Confidence Index rose to 55.5 last month, up slightly from 52.3 in November, which itself was a mild recovery from its all-time low of 49.9 in September, India's peak covid month. An index reading is basically a balance of optimism and pessimism, with 100 indicative of both evenly poised. Anything under 100 reveals hard times. Since its readings are drawn from a survey of 5,351 families sampled in 13 major cities, they represent only urban sentiment, but the lack of cheer in cities was probably mirrored in the countryside.

The survey tracks overall economic expectations as well as what people make of the employment market, price pressures and their income prospects and spending dispositions. While urban India was sullen in January, by and large, households were more optimistic for the year ahead. The Future Expectations Index, which gauges year-ahead expectations in comparison with current conditions, edged up to 117.1 in January from 115.9 in November. The worst, most believe, is behind us.

Worryingly, even if our economy stages a rebound next fiscal year, some scars of the pandemic could prove hard to erase. Income shocks tend to turn households cautious about non-essential expenses, and such attitudes developed in times of stress can persist for long after a crisis. More than 70% those surveyed said they expected their discretionary spending to remain unchanged or decline over the next year. Also, while more than half the survey's respondents hoped their incomes would increase, over three-fourths saw inflation going up. Whether it will, though, will depend on how India's revised approach to macro-economic management works out. Fiscal loosening is now the Centre's official policy, as evident in the budget for 2021-22. On Friday, RBI Governor Shaktikanta Das spelt out the virtues of retaining our inflation-targeting framework. Even if we do, and it's New Delhi's call, making it work will get tougher for RBI. And, as the government's debt burden gets heavier, its temptation to inflate it away will likely grow.

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Published: 05 Feb 2021, 09:41 PM IST
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