Festive cheer lifts consumer mood

Consumer goods companies were greeted with buoyant consumer sentiments at the beginning of the festive season of 2022. Ganesh Chaturthi festivities began on August 31 and continued till September 9. Onam festivities almost overlapped those of Lord Ganesha’s. Navratri spanned from September 26 through October 4. Therefore, September was packed with festivities across the nation.

According to CMIE’s Consumer Pyramids Household Survey (CPHS), during September 2022, the unemployment rate dropped to a four-year low of 6.3 per cent and the index of consumer sentiments rose to a 30-month high. Consumer sentiments rose by 7.1 per cent in September.

More importantly, like the fall in unemployment rate across rural and urban regions in September, the improvement in consumer sentiments was also across the hinterlands and towns. Urban consumer sentiments rose by 9.3 per cent, while rural sentiments were up by 5.6 per cent in September. In both regions, the respective indices of consumer sentiments were at their highest in 30 months.

The Index of Consumer Sentiments (ICS) comprises two components — the Index of Current Economic Conditions (ICC) and the Index of Consumer Expectations (ICE). Both recorded handsome gains during September. The ICC rose by 7.9 per cent and the ICE was up by 6.5 per cent. Further, both components increased very well in rural and urban regions.

Current economic conditions have improved particularly well in both regions. The urban ICC increased by a handsome 8.3 per cent and the rural ICC was up by an equally impressive 7.4 per cent. Households’ perceptions regarding their current wellbeing seem to have improved quite substantially in September. This is somewhat in line with the improvement we see in the employment data. Employment in urban regions improved by 1.4 per cent and rural employment increased by 2.9 per cent. This could have had an impact on perceptions regarding current economic conditions because one of the questions in the ICC is regarding household perceptions about their current income compared to their income a year ago. An increase in employment can be expected to have a direct bearing on the answer to this question.

The second question in the ICC relates to household propensity to buy consumer durables. It seems that in this festival month, neither high inflation nor high interest rates dampened the spirits of Indian consumers. The CPHS has recorded a sharp increase in the propensity of households to buy consumer durables in September.

In August 2022, 10.9 per cent of households believed that it was a better time to buy consumer durables compared to a year ago. Before the pandemic-induced lockdowns, this ratio was in the range of 20-30 per cent. It had fallen to single digits in the post-March 2020 period. But, since April 2022, this ratio has ranged between 10 and 13 per cent. In September 2022, it shot up to 16.2 per cent. This should be great news to all consumer goods companies as it comes when India is on the eve of its peak festive season.

Once again, the gain in the propensity to buy consumer durables is across rural and urban regions. In urban India, the proportion of households that believed this to be a better time to buy consumer durables increased from 15.5 per cent in August to 18 per cent in September. In rural India, the increase was from a low of 8.7 per cent to 15.3 per cent. Both regions have reached their post-March 2020 peaks in September 2022.

While consumer expectations grew in both rural and urban regions, the rate of increase was much higher in urban than in rural areas. Urban regions recorded a 10 per cent increase in the ICE, while rural areas recorded an increase of only 4.4 per cent. Rural India is a lot less optimistic about its income a year into the future. Poor rains and a smaller acreage in the north along with government efforts to rein in runaway food prices have possibly played a role in dampening the spirits of the rural folks. But, they are quite gung-ho on the medium-term outlook for the economy.

Consumer sentiments seem to have changed tack in recent months. Between January and June 2022, the ICS grew in low single digits every month, and also at a gradually slowing pace of growth. During July, August and September, the ICS’s growth has been volatile as it has alternated between growing at about 7 per cent and shrinking by 0.5 per cent. On a net basis, this higher volatility in monthly growth rates has also yielded higher net growth, but the enhanced volatility has also infused a certain uncertainty. In this context, the all-round growth of the robust 7 per cent escalation in the ICS in September 2022 is reassuring.

October did not begin on a strong note. The ICS shrunk by 0.7 per cent in the week ended October 2 and then by another 3.2 per cent in the week ended October 10. Both declines were concentrated in rural India. Urban India pencilled strong growth in the ICS in both weeks. The propensity to buy consumer durables vaulted. Nearly 24 per cent of the households considered this to be a better time to buy consumer durables than during a year ago. Before the lockdowns, this ratio was around 30 per cent. Although rural India has lost a little steam, its 30-day moving average ICS is at its peak since April 2020.

This is very promising for the ensuing festival season.

The writer is MD & CEO, CMIE P Ltd