Despite a flagging economy, India’s consumers have turned optimistic for the first time since May 2017

• The RBI’s consumer confidence survey, which was conducted across 13 major cities, indicates a rise in general sentiment.
  
• The current situation index, which measures people’s confidence in the current state of the economy, showed a positive reading of 104.6 - which indicates optimism - for the first time in two years.
  
• Moreover, the future expectations index, which measures people’s confidence in the country’s one-year growth outlook, touched 133.4 - an all-time high in the survey’s history
  

Following a meeting of its monetary policy committee, the Reserve Bank of India released the results of its consumer confidence survey for the January-March quarter on April 4th.

The survey, which was conducted across 13 major cities, indicates a rise in general sentiment.

The current situation index, which measures people’s confidence in the current state of the economy, showed a positive reading of 104.6 - which indicates optimism - for the first time since May 2017. A reading of 100 indicates a completely neutral sentiment, while anything less denotes pessimism.


Moreover, the future expectations index, which measures people’s confidence in the country’s one-year growth outlook, touched 133.4 - an all-time high in the survey’s history, according to the RBI.

The renewal in confidence was largely due to higher expectations of income and employment, which translates into higher spending expectations one year on.

This contrasts with the RBI’s outlook. The central bank cut rates for the second consecutive time yesterday over concerns of slowing growth.

In addition to the rate cut announcement, it also trimmed the GDP growth forecast for 2019-2020 to 7.2% from 7.4%, citing a drop in investment demand, and lower capital spending.

However, in sync with the RBI - which lowered its inflation estimate for the fourth quarter of 2018-19 to 2.4%- there was also an easing in households’ inflation expectations.

The survey, which is conducted in households across 18 major cities, showed that peoples’ expectations of inflation - three months on and a year on - were down by 40 basis points from December 2018 to March 2019.

These confidence surveys are seen as a proxy measure when it comes to gauging aggregate demand in the short term and assessing people’s views on the economy. A positive trend indicates the possibility of higher spending by consumers in the short-term and that may boost growth.

The RBI’s back-to-back rate cuts will add likely boost consumption further, and that will see the economy stay buoyant through the period during and after general elections.


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