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RBI surveys show a mirror to government on falling consumer confidence


Date: 05-06-2020
Subject: RBI surveys show a mirror to government on falling consumer confidence
The Reserve Bank of India's consumer confidence surveys released on June 4 present a grim picture of the economy.

Consumer confidence collapsed in May 2020, with the current situation index (CSI) touching a historic low and the one-year ahead future expectations index also recording a sharp fall, entering the zone of pessimism.

Consumer perception on the general economic situation, employment scenario and household income plunged deeper into contraction zone while expectation on general economic situation and employment scenario for the year ahead were also pessimistic, the surveys said.

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Overall consumer spending remained afloat, mostly due to relative inelasticity in essential spending. Consumers,  however, reported sharp cuts in discretionary spending and also do not expect much improvement in the coming year.

Message to government

The findings show a mirror to the government. The Rs 20-lakh crore economic package announced has done little to boost demand. Against the promised push to GDP through economic package (10 percent of the GDP), the actual direct spending was only about one percent of the GDP, according to economists.

The COVID-19 scenario has worsened the already problematic unemployment scenario. According to the Centre for Monitoring Indian Economy (CMIE), the unemployment rate spiked to about 23 percent in April and even higher to 23.48 percent in May. This is unlikely to improve anytime soon considering that industries are in a bad shape and liquidity remains a key problem.

Macroeconomic indicators likely to worsen

Along with the consumer confidence surveys, the survey of professional forecasters on macroeconomic indicators conducted in May show that real GDP is likely to contract by 1.5 percent in 2020-21 but is expected to revert to growth terrain next year, when it is likely to grow by 7.2 percent.

Real private final consumption expenditure is expected to decline by 0.5 percent during 2020-21 but likely to record 6.9 percent growth during 2021-22. Similarly, the real gross fixed capital formation (GFCF) is likely to register negative growth of 6.4 percent in 2020-21 but likely to grow by 5.6 percent in 2021-22.

These findings are largely in line with predictions of other private forecasters. India's economic growth story, which was facing hurdles even before COVID-19 hit India, remains in challenging phase. The government needs to act urgently to revive the purchasing power of average consumer by making more money available to spend.

Source:- moneycontrol.com

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