heyThe work commissioned by the Reserve Bank of India (RBI) generally does not look for political signals, but they do sometimes show up, even if unintentionally. An example of this is the Periodic Survey of Consumer Sentiment in Urban Areas, commissioned and published by the Reserve Bank of India.
It appears from these that what Prime Minister Narendra Modi has been able to do very effectively is to fill urban Indians with hope. Even if their immediate economic situation is difficult, or has not improved, they have become more optimistic about the future – in a way that was clearly not true before the advent of Mr. Modi.
The dichotomy in consumer assessments of the present and the future is captured in two indices based on RBI surveys: the Present Situation Index and the Future Expectations Index.
In 2013, the two indices tracked each other closely; The current situation index for September of that year stood at 88, and the future expectations index stood at 90.5. By December, both indices began to diverge; While the current index saw a slight improvement at 90.7, the future expectations index jumped to 100.7 – a difference of 10 points. And by March and June of 2014, at the peak of regime change, the gap between the present and the future widened to 15 points and then to 22.5 points.
In the years that followed, the gap widened further. While the current index of consumer confidence for May 2023 is more or less where it was nearly a decade ago, at 88.5 (reflecting concerns about inflation, declining non-essential spending and the employment situation), future expectations The index is high at 116.3.
Current consumer sentiment is below normal, but hopes that things will improve a year ahead remain high.
Mr. Modi’s tenure in office can be divided into two clear periods: before and after demonetisation. Prior to November 2016, the current position index was consistently seen above the 100 mark, while the futures index hovered around or above the 120 level.
Demonetisation marked a turning point. Thereafter the score of the current index fell sharply and remained below 100 until March 2019, when it briefly peaked at 104.6. At the same time the future expectations index climbed a steep hill, reaching a decade high of 133.4. This brief increase in consumer sentiment may be just in time to help the Bharatiya Janata Party (BJP) win the Lok Sabha elections held in the summer of 2019.
TeaTwo points are worth noting. First, recurring surveys made no sense when people were pessimistic about their overall economic situation looking a year ahead; The Future Index has always scored better than the Current Situation Index.
In fact, during the Covid period, the current index had fallen as low as 50. It remained at this depressed level for more than a year, but the remarkable fact is that the future expectations index remained at around 100. At one level the difference between feelings about current and future conditions was 60 points.
Despite the crisis in their lives, most people in the towns and cities assumed that their current difficulties were temporary. And so they have proved to be, as the current index of consumer confidence has largely recovered.
But this brings up another point to note. Neither index has moved anywhere since March 2019 levels. The index at 88.5 still has to rise from the pre-Covid crackdown of March 2020, when the score stood at 85.6. And that level was a sharp decline from 104.6 at the time of the election a year ago.
If the level of consumer confidence is indeed a political bellwether, the question is whether the current level of the current situation index is good enough for the BJP to win another election a year later. Or does the index have to climb substantially and cross the 100 mark, as it did in 2019? This would mean that retail inflation would be brought under control, employment prospects would improve, and more money would be put in people’s pockets, so that the party could cut political ends.
By special arrangement with Business Standard.