Why India’s conservative consumers are bad news for GDP | So Good News


“Giving a chance to sell something doesn’t hurt as much as taking money out of your wallet to pay for it.” “Opportunity money is vague compared to real money,” wrote Thaler.

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The recently released GDP growth rates show India’s economy is looking bright, if not exciting. So why is the Indian consumer in pain and suffering to pay for something?

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As we mentioned in our article published on 18 June 2022, the biggest challenge facing Finance Minister Nirmala Sitharaman and her team is to revive consumer sentiment which continues to be weak. Sure, it’s hard to gauge exactly how consumers feel about the sales of two wheelchairs a month or box-office collections of Bollywood disasters. But economists and policymakers know that consumer sentiment is real and plays a big role.

Since 58-60% of India’s GDP is due to consumption, maintaining even 7% GDP growth is not possible unless the Indian consumer spends liberally. Sitharaman’s problem is that the Indian consumer still seems reluctant to spend money, especially on products and services that are not considered everyday necessities.

An international survey carried out by CVoter, on 28 and 29 August, using systematic methods, confirms this. About 2,000 respondents participated in the survey. Some of the questions asked were the same as in previous surveys – in November 2021, January and June 2022 – the results of which were published in Mint.

Restorative holidays. Really?

Let’s look at the answers to one question to understand the depth of weak consumer sentiment. In June 2022, we asked Indians if they had gone on vacation or wanted to go. This was because the media was full of stories about “revenge vacations” while rich Indians were filling the airports ready to board flights to foreign countries. Therefore, every third Indian was seriously thinking about vacations this year (especially summer vacations).

Now that the summer vacation is over, CVoter asked Indians in a recent survey if they went on vacation this year. Less than 20% of respondents said they had gone on vacation, while more than 80% said they had not. After two years of lockdowns, disruptions and worst-case scenarios, one would expect many Indian families to spend on holidays. Especially when India showed a GDP growth of 8.7% in the financial year 2021-2022. It didn’t happen.

Even if it did, it would be less than expected. About 20% of the respondents had a plan – they were hoping for good or luck – but only about 7%, or one third of those who were planning to go on summer vacation, finally went ahead. Two-thirds of them simply abandoned the idea.

Wake up alarm

Some would argue that holidays and vacations aren’t what determine consumer sentiment. What about television sets and mobile phones – the consumer staples of middle class households in India?

For the average Indian consumer, televisions and mobile phones are not luxury purchases but a necessity. The survey asked Indians if they would buy “expensive” TVs and phones in 2022. The answers should be a wake-up call for policymakers. bad.

Waking up can be very scary when one hears answers to future buying intentions. Indians were asked whether they intend to buy TVs and mobile phones during the upcoming holiday season. Less than 10% said they would “definitely buy”, while another 14% said “yes, maybe”. In contrast, about 76% of respondents said “probably not” and “no”.

Economics is simple. If consumers don’t spend, there is no way for GDP to grow at 7%. Most of the increase in sales of goods and services is very important which translates into purchases. But the Indian consumer is still uncertain and skeptical.

The reason is simple. Ordinary Indians are still struggling to manage their household finances as incomes are not rising (or recovering after the covid-19 pandemic) despite rising GDP and sound financial management in India.

Where is the money?

In a survey conducted in August 2022, Indians were asked a simple question: Has your income increased, decreased or stayed the same since January 2022?

To reiterate, GDP growth in 2021-22 was 8.7% and the newly released figures for the June quarter 2022-2023 show a healthy GDP growth of 13.5%.

However, only 11.7% of respondents said their income has increased since January 2022; 36.9% said it had remained the same, while 51.4% said it had decreased.

Common sense suggests that at a time when inflation is slowing, many Indian consumers are struggling to make ends meet. We also asked another question: compared to January 2022, has the problem of managing household income increased or decreased? Almost three out of every four respondents were of the opinion that it has become difficult to manage household finances. This is worse than CVoter’s figures from March 2020, when two-thirds of Indians said they had difficulty managing household finances.

The Reserve Bank of India (RBI) comes out with the Consumer Confidence Survey once a month. The latest was released on 5 August 2022. The answers to questions about money, inflation and the current state of the economy as reported by the RBI are similar to CVoter survey results. Take money, for example. About 36% of respondents in the RBI survey said their income has fallen—lower than the 51.4% in the CVoter survey. However, the RBI survey asked respondents to compare their income in July and May, while CVoter covered the period from January to August. Similar to the CVoter survey, the RBI survey confirms that nearly three out of every four respondents think that household income has increased. The RBI survey divides waste into essential and non-essential items. A recent report shows that while 82% said spending on essentials had increased, 45.5% reported a decrease in spending on non-essentials.

In the morning

An interesting question that emerges from the overall analysis is: will GDP growth slow down in 2022-2023 due to continued consumer weakness? Is it possible that GDP growth will fall below 6% this year?

Many experts think so. But, fortunately for Nirmala Sitharaman and her team, the data also clearly shows that while it is still dark for Indian consumers, the dawn may be near. By ‘consumer’, the authors mean the middle class Indian. High-income Indians have not suffered – even during the peak of the pandemic – and have been driving population growth for the past year or so.

A clear sign of the gap between India’s aspiring and affluent Indians was shown in 2021-2022 when the GDP grew at 8.7%. According to the data released by the Society of Indian Automobile Manufacturers (Siam), two-wheeler sales fell by 11% to the previous record registered in 2011-12. Despite the brutal shutdown and other disruptions, two-wheeler sales in 2020-2021 were 15.12 million units, while the figure was 13.46 million units in 2021-22.

In stark contrast, car sales grew 13.6% to around 3.07 million units in the same period. There can be no better indication than this set of data to show how the benefit of the revival in GDP growth has not reached the middle class.

However, the latest data points to things to come.

According to data from Siam, scooter sales rose 100% and motorcycle sales grew 38% in the April-June quarter of 2022-23 from the previous period. This is a memorable brand that the aspiring Indian consumer is starting to use. Along with two-wheelers, mobile phones are a powerful indicator of the buying intentions of the target Indian consumer. According to data released by the market research company IDC, green shoots of recovery can be seen here, too, with smartphone sales growing 3% to 35 million in the April-June quarter.

This is confirmed by the responses to the CVoter survey. When asked about the future prospects of the family’s finances, 18.1% said it would be good while 22.4% said it would be possible. Conversely, 15.9% said there is no chance of change, while 7% said it could be damaged. This is a significant change in outlook compared to 2021. Even the RBI survey released in August shows the same change. About 52% of respondents said they expected their income to increase in a year, while less than 9% expected it to decrease.

The authors would like to conclude with another quote by Richard Thaler: “You cannot make evidence-based decisions without evidence.”

Yashwant Deshmukh is the founder & editor-in-chief of CVoter Research Foundation & Sutanu Guru is the managing director.

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