Sanguine amidst slowdown

Any major country in the world would give an arm and a leg for a growth rate of 6% per annum. But, in India, we lament such an achievement as a ‘slowdown’. This is because, somehow, today we perceive any growth below 7% to be unsatisfactory. And not so long ago, we perceived any growth rate below 8% to be less than satisfactory.What has changed now? It is not as if our per-capita income levels have suddenly shot up to a point where a lower growth rate can be considered satisfying. We are still a lower-middle income country.What has really changed is our perception of what a satisfactory growth rate will be. Such perceptions do matter as they reflect the mood of the times that influences economic decisions. For instance, usually, growth in discretionary spending is a function of growth in income. But, if income expectations change, then the relationship between income and discretionary spending could also change. Similarly, aspirations and social norms impact decisions. If the mood turns sombre, if aspirations are diluted and if social norms turn less upbeat, economic decisions would be less enthusiastic even if income growth remains unchanged.
Divergent findings on spending
How does this optimism on income and employment translate into a willingness to increase spending on discretionary or non-essential items? Here, the RBI and CMIE surveys diverge significantly. The RBI survey is prescient in anticipating a slowdown in the automobile sector. It shows that while households are optimistic on jobs and income in spite of current adverse conditions, they are not similarly gung ho about spending on non-essentials. In mid-2018, on a net basis, 53% of the households expected to spend more on non-essentials a year ahead. By July 2019, this proportion fell to 15%.The CMIE’s CPHS asks a related but somewhat different question, on whether households considered current conditions to be a good time to buy household durables. It shows that till July 2018, respondents who believed that it was a good time to buy consumer durables roughly equalled those who believed it wasn’t. Both numbers were at about 22.6%. By March 2019, the proportion of pessimists declined to 17% and that of optimists increased to 30%. The CMIE survey shows an improvement in the mood to spend on discretionary goods. This reflects the fact that sales of domestic appliances began a recovery in the June 2018 quarter and grew at double-digit rates during the December 2018, March 2019 and June 2019 quarters.
Evidently, there isn’t any widespread consumer goods slowdown. The slowdown is prominent in the automobile sector but not in other industries. The RBI survey reflects the former and the CMIE survey reflects the latter. It may be worth noting here that the RBI survey is based on a survey from 5,451 respondents from 13 towns while the CMIE’s CPHS is based on over 40,000 respondents from over 300 towns and nearly 3,000 villages.Different parts of the Indian economy are moving in divergent directions but, Indian households maintain hope in a future that will bring in more jobs and more income.

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