Consumer sentiments in India witnessed its fifth consecutive month of improvement in May, although the rate of increase has slowed down, raising apprehensions of potentially volatile growth in the coming months.
The Centre for Monitoring Indian Economy (CMIE) highlighted concerns related to the erratic monsoon and state elections as contributing factors to this uncertainty.
According to CMIE’s labour market analysis, the Index of Consumer Sentiments (ICS) recorded a growth of 0.9 per cent in May. While the cumulative growth for the first five months of 2023 stood at 17.4 per cent, slightly lower than the corresponding months in 2022, the rate of increase has been gradually declining throughout the year. In January and February, the rate of increase was 4-5 per cent, which dropped to 3 per cent in March and April, and further decreased to less than 1 per cent in May.
CMIE cautioned that the ICS could face challenges in the coming months, primarily due to the delayed and below-average monsoon precipitation. Furthermore, state elections scheduled towards the end of the year could introduce volatility in consumer sentiments, as political parties tend to make promises and offer freebies during campaigning.
The data provided by CMIE also revealed a disparity between rural and urban consumer sentiments. While rural consumer sentiments increased by 1.2 per cent in May, urban sentiments only saw a growth of 0.5 per cent. This discrepancy can be attributed to the gains made by farmers from the recently harvested rabi crop in rural areas.
During April and May, the Index of Current Economic Conditions (ICC) in rural India emerged as the major driver of ICS growth. The ICC for rural India recorded a significant growth of 2.9 per cent in May, compared to the overall ICC growth of a mere 0.9 per cent. CMIE suggested that the income effects from the rabi crop likely played a significant role in this positive performance during the last three weeks of May.
However, CMIE also noted that while the rural ICC showed positive growth, the rural Index of Consumer Expectations (ICE) did not exhibit similar optimism. The growth in rural ICE stagnated in May after a 2.3 per cent increase in April. This lackluster performance raises uncertainties regarding consumer sentiments in the upcoming months.
CMIE emphasised the need to closely monitor the progress of the monsoon and government interventions to gauge how Indian households will prepare for spending during the 2023 festive season.