Indian consumers are losing hope amidst a tottering economy.
The consumer confidence index which stood at 104.6 points in March swung to 97.3 points in May, according to data released by the Reserve Bank of India yesterday (June 6) after its bi-monthly monetary policy announcement.
A reading below 100 on the index denotes pessimism.
Consumers don’t expect things to turn around immediately, either. The central bank data showed the future expectations index (FEI) also slipping from an all-time high of 133.4 points in March 2019 to 128.4 points in May.
“Weakening confidence is primarily attributable to the deterioration in sentiments on the economic situation and employment,” the RBI said. The index is based on an RBI survey of consumer perceptions in May, regarding the economy, jobs, their income, and prices.
The results of the survey hardly come as a surprise. Last week, India lost its tag as the fastest growing major economy after GDP growth slowed to 6.8% in fiscal 2019, the lowest in five years.
Even the central bank is concerned about the situation. “… growth impulses have weakened significantly,” the RBI said in its policy document yesterday. “A sharp slowdown in investment activity, along with a continuing moderation in private consumption growth, is a matter of concern.”
In order to boost growth, the RBI cut interest rates for the third time in a row to 5.75%. The repo rate—at which it lends to commercial banks—is now at its lowest since July 2010. This is expected to provide an impetus to growth.
Meanwhile, consumers have significantly slowed their discretionary spends. For instance, in April, auto sales fell to their lowest level in eight years. In the same month, domestic air travel contracted 4.5%, the first fall in nearly five years. Even consumer goods companies such as Hindustan Unilever (HUL) have noted that there have been cutbacks in spending.
Also, overseas investors haven’t been very bullish on the India growth story. Foreign direct investments (FDI) into India fell for the first time in six years in financial year 2019.
Now, all eyes are on the second Narendra Modi government.