Buoyant Budget, But Sagging Sentiment

The CMIE survey indicates that rosy expectations of growth presented in the budget, have not convinced or cut ice with the end consumer, the common man.

A. After a highly buoyant and bullish budget that was presented by the FM, the CMIE conducted its routine consumer households survey and the findings primarily were that the rosy expectations of growth presented in the budget, have not convinced or cut ice with the end consumer, the common man. CMIE’s survey findings were that:

• The Index of Consumer Sentiment fell by 4.2% after the budget, reflecting a worsening consumer sentiment. It contradicts with a 9% increase in equity market valuations post the budget presentation.
• The CMIE’s Index of Current Economic Conditions and Index of Consumer Expectations, both fell after the budget was unveiled. More respondents said that they expect their income to worsen in a year, as compared with their pre-budget responses.
• A lesser number of respondents believed that financial and business conditions would improve in the coming year.
• Even long term expectations of consumers over a five year period were equally bad, if not worse.

B.The CMIE Survey findings reflect the overall mood of depleted household incomes and uncertainty at the ground level, due to the impact of coronavirus pandemic, on an already slowing and stalled economy. The facts of relevance are:

• Many sectors are still struggling, with 14 out of 23 manufacturing subsectors reporting a contraction in December, 2020.
• In the first 9 months of FY 21, manufacturing output shrank by 13.5%, as compared with a growth of 0.6%, a year ago.
• With Sept/Oct. 2020 demand upsurge being due to festival/pent up demand, recovery remains fragile and uncertain.
• The corporate profits reported in the last quarter, have been due to cost-cutting and not due to a resumption of consumer demand and are thus likely to slump again.
• Jobs lost have not been fully regained and joblessness hangs in the air.

C. The reasons why consumer sentiment fell despite a bullish and expansionary budget are many and are stated below:

• With a 34% increase in budgeted capex spend and 15.6%, increase in the overall government spending, recovery and revival are hoped on government spending on infra projects etc. But there has always been a huge gap between the government’s promise and performance and thus for the common man, it is a wait and watch game.
• Right from the ache din that never did come to failure to deliver the promised jobs, the government has failed to deliver its promises and hence the budget failed to boost consumer sentiment.
• The economic growth rate has been shrinking year after year and business/livelihood lost has not come back and so has been the case of jobs lost.
• Even the jobs lost due to the pandemic have not returned, with 40mn jobs not being restored, building a further sense of uncertainty.
• Businesses have either downsized or closed down and loan defaults are imminent. The moratorium and the restructuring are mere temporary relief measures and with no rapid real build up of cashflows, small borrowers in particular are a nervous lot.
• With such business hardships and expected loan defaults, it has become even more difficult to access/obtain loans from the banking system, only adding to the woes of the common households.
• Lockdown/closures have eroded household incomes and savings and consumer spending has not returned.

With economic recovery being largely dependent on government spending, the private sector preferring caution and refraining from fresh investments and the MSME/informal sector continuing to suffer, consumer sentiment is bound to dip. Even if covid goes away soon, it will take a full year for the GDP to be restored to where it was in March 020 and that’s with a big IF. No wonder the consumer sentiment remains low and uncertain. Only Government spending that gives rise to jobs and boosts livelihood will improve it.