Macro Matters | RBI’s survey provides clues about how the Modi government shrugged off economic woes to return to power

Money Control
June 11, 2019

A clue about how the Modi government was able to shrug off dismal economic data and return to power with a thumping majority is contained in the Reserve Bank of India’s latest consumer confidence survey. The survey shows that consumers are fully aware that the economy is struggling, their incomes are stagnating and unemployment is growing. Yet they are also hopeful that ‘achhe din’ are around the corner and things are going to get better soon. The government has done a remarkable job of keeping their hopes alive.

Let’s take the data on jobs first. As much as 44.2 percent of those surveyed in the May 2019 round felt that job prospects were worse than a year ago. Another 22.1 percent felt there had been no change in the job situation. Only 33.7 percent, a third of those surveyed, felt that job prospects had improved.

Nevertheless, 59.3 percent feel their employment prospects will improve a year from now. Hope springs eternal in the consumer’s breast.

Five years ago, in June 2014, when the first Narendra Modi government took power, 30.2 percent said job prospects had deteriorated from a year ago, which is lower than the 44.2 percent saying so now. But at that time too, 65.1 percent said the employment situation would get better within a year. Optimism then was higher than now. It remains to be seen whether the current optimism too peters out, as happened last time---by September 2015, less than half believed their job opportunities would improve.

Let’s talk about perceptions on income next. Only 29 percent say incomes are higher than a year ago. This is possibly a clue to the consumption slowdown everybody is talking about. A fifth of those surveyed say income has decreased from a year ago. Five years ago, perceptions about income were much better.

However, people continue to have faith that conditions will improve. Those who believe incomes will rise in the next one year are 58.9 percent.

Next, we come to perceptions about the general economic situation. In the May 2019 survey, 38.8 percent said the economic situation is better than a year ago, while 37.7 percent said it’s worse—a close call. But 61.4 percent say it’ll get better in a year, while only 20.9 percent say it’ll worsen.

Finally, we come to perceptions about spending. The survey says, ‘Despite a marginal increase in spending on essential items, a sharp fall in the discretionary spending led to lower overall spending by households and a somewhat less optimistic outlook for the year ahead.’ Those who say they are spending more than a year ago are 68.6 percent, the lowest since September 2013. This is the key to the slowdown in consumption. With stagnant incomes and dismal job prospects, how on earth will people spend? Spending, unlike votes, does not merely depend on hope and faith.


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