Dear Readers,
Last week, India’s central bank, the Reserve Bank of India, released its October “Bulletin”. Each such monthly bulletin contains a crucial chapter titled the “State of the Economy”. This chapter is keenly followed by observers as it gives the most updated and the most comprehensive round-up of the Indian economy.
This month’s round-up was particularly noteworthy because it contained both the inputs from the International Monetary Fund’s latest World Economic Outlook as well as the RBI’s in-house surveys that map consumer sentiment in the country. Together, they not only provide a good way to understand if the public’s perceptions (of current economic growth) and expectations (of future growth) align with what the experts at RBI and IMF see and expect but also present a way to understand how Indians view the economy today as against any other time in the recent past.
To set the context, we should look at what the experts expect. The IMF projects India’s economic recovery to be quite robust in the current financial year (an expected GDP growth of 9.5% in 2021-22), which is likely to sustain in the next financial year (a GDP growth of 8.5% in 2022-23). Look at the chart below, sourced from IMF and presented by the RBI in its October Bulletin. It maps the expected rates of the rise and fall of GDP growth rate in different economies.
India’s economic recovery better than the world average
To better understand these growth rates and their implications, look at the chart below, which sets the GDP of each country in 2019 at the 100-mark and then maps where a particular country would be by the end of 2022. Doing this allows us to see that while India’s economic recovery is expected to be below the world average by the end of 2021, it will overtake the global average by the end of 2022. If that happens it would be no mean achievement given the fact that, as the chart shows, India was possibly the worst hit among all major economies due to the Covid pandemic in 2020. Experts expect India’s recovery to be so sharp that it will overtake not just the global average — relatively speaking, with reference to where each concerned country was in 2019 — but also most of its peers such as Brazil, South Africa, Russia etc. China is the only exception.
India’s economic recovery better than the world average
How does this compare with public perception about the general economic situation in the country and allied variables?
The RBI’s quarterly Consumer Confidence Survey (CCS) for September 2021 is a handy guide.
This survey was conducted through physical interviews, between August 29 to September 7, 2021, in 13 major cities, viz., Ahmedabad; Bengaluru; Bhopal; Chennai; Delhi; Guwahati; Hyderabad; Jaipur; Kolkata; Lucknow; Mumbai; Patna; and Thiruvananthapuram.
The survey obtained current perceptions (vis-à-vis a year ago) and one year ahead expectations on the general economic situation, employment scenario, overall price situation and own income and spending from 5,237 households across these cities.
The way these surveys are done is that for any variable — say inflation or income — the RBI asks people whether they think the situation has improved over the past year or worsened. Similarly, it asks whether people expect the situation to improve over the coming year or worsen.
In the charts below we will look at the “net responses” for five key economic variables. The Net Responses essentially map the difference between the percentage of people who think the situation has improved (or will improve) and the percentage of people who think the situation has worsened (or will worsen). So, if the net response is in the negative zone, it means the percentage of people thinking that things have worsened (or will worsen) — say on the inflation front — is more than the percentage of people who think that things have improved (or will improve). For instance, if 10% of the people surveyed say the inflation rate will fall in the year ahead and 85% of the people think that it will rise further (while 5% say it won’t change) then the net response will be minus 75%.
As we look at the charts below, notice four key elements.
One, whether the net responses are in the negative territory or positive. Two, how far negative or positive they are. Together, these two characteristics will tell you what most people think.
Three, notice the difference between current perception (that is, today’s condition in comparison to a year ago) and future expectations (that is, today in comparison to where people think things will be a year from now). Typically, a widening gap between the two lines reflects poorly. Lastly, you should mark whether these trend lines are going up or down.
The chart below maps the net responses for the general economic situation. While both the lines are looking up, it is a fact that both current perception and future expectation are still at one of the lowest points since 2012. It is a relief that net responses for future expectation on the economic situation in India is positive — implying more people expect it to be better than what it is today.
Perceptions and expectations on general economic situation
The chart below maps the net responses on employment. Again, the current perception is in the negative territory, implying more people think employment is worse off than it was a year ago. Future expectations are in the positive territory but notice, again, this level of net responses (8%) is lower than a year ago (23%). In other words, as against September 2020, fewer people expect improved employment prospects in September 2021.
Perceptions and expectations on employment
The chart below looks at another big reason for worry for Indians — inflation. The first thing to notice in this chart is that net responses for both current perceptions as well as future expectations have been in the negative territory for the past 9 years. In other words, at any given time since September 2012, more people felt that inflation had risen over the past year and more people expected inflation to rise over the coming year. This explains why Indians may have a rather jaundiced view when it comes to inflation. What is worse is that, unlike the previous charts, which showed an upward trend, in this chart both the lines are pointing down — implying more and more people are feeling the pinch of inflation.
Perceptions and expectations on inflation
If inflation has been going up, what is the perception about income?
The chart below maps the net response on income. The first thing to note is that an overwhelming percentage of people continue to report that their incomes are less than what they were a year ago; the line mapping current perception continues to languish at the bottom. Secondly, while net responses for one year ahead expectations are in the positive territory — which means more people expect to earn more in a year’s time — but this percentage of net responses (31%) is lower than what it was a year ago (43%). The much wider gap between the two lines shows increasingly unmet expectations.
Perceptions and expectations on income
Lastly, we map a key variable — spending on non-essential items. Typically a rapidly recovering economy would see more and more people spending (and, more importantly, wanting to spend) on non-essentials. The chart below tracks the net response on non-essential spending. It is quite worrisome that both on current perception as well as future expectations, the net responses are in the negative territory. The silver lining is that both the lines are trending up but the fact is both are still fairly in the negative. For instance, the percentage of people who reported spending less on non-essentials in September 2021 (as against September 2020) was 52 percentage points more than the percentage of people who reported spending more than a year ago. In terms of future expectations, too, while the net responses were better than what they were in July 2021, they are much worse off than what they were in September 2020.
Perceptions and expectations on non-essential items
The Upshot
While most experts expect India to post an economic recovery that is above the world average in the coming year, public perception of key economic variables — such as inflation, employment, income and spending — is far less sanguine.
Share your views and queries at udit.misra@expressindia.com
Try to get vaccinated, keep wearing a mask in public, and stay safe.
Udit
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