Something seems to have snapped in December 2021. Consumer sentiments declined after increasing for five consecutive months. The Index of Consumer Sentiments fell by 4.4 per cent. The fall erased all the gains made during October and November.
This sudden fall is surprising. India, like the world at large, was taking clear steps to return to normalcy. Vaccination had made strides. Omicron was unheard of as a dreaded variant for a better part of December. Public transport had resumed. Travel and tourism was picking up. Theatres had opened. Weddings, parties, pilgrimages and political rallies had all swung back into action. There were plans to open schools and colleges. December also saw the end of the year-long farmers’ strike. The world seemed to be opening up after nearly 18 months of restrictions. The mood appeared to be getting cheerful and uplifting.
Then why did consumer sentiments fall in December? It seems only the rich may have been feeling elated.
The return to normalcy in December 2021 was celebrated by the rich and not by the rest. Households that earn over Rs 10 lakh a year saw their consumer sentiments rise by an impressive 12.8 per cent in December. All other broad income groups saw a fall in sentiments, or near stagnation. The richer households are likely to have benefited the most from vaccination, the opening of travel, tourism, hotels, theatres, etc. These households have seen the best recovery from the pandemic. In December 2021, their index of consumer sentiments was 39 per cent short of its 2019-20 level. This is better than any other income group. Overall, the index of consumer sentiments in December 2021 was 45.5 per cent lower than it was in 2019-20.
Households that earn over Rs 10 lakh a year account for a very small proportion of Indian households. Their proportion has also fallen during the pandemic. In 2019-20, they accounted for 1.2 per cent of all households. In 2020-21, their share fell to 0.5 per cent. This share is likely to have increased a bit in 2021-22. But they are unlikely to add up to more than 0.6 per cent of all households, or about 2 million households. Their share in consumption expenditure, of course, is higher and their share in savings is much higher.
At the other end of the income spectrum, the poorest households – those that earned Rs 100,000 or less in a year – saw the biggest fall in consumer sentiments in December 2021. It is unclear what may have caused their index of consumer sentiments to drop by a substantial 20.7 per cent in the month. There has been some excessive volatility in the monthly variations in this index. It is clear, however, that this group is the least enthusiastic about an economic revival. Their index in December 2021 was 51.7 per cent lower than it was in 2019-20. This group matters because their numbers swelled from 10 per cent of all households in 2019-20 to 17 per cent in 2020-21. The pandemic hit this group hard. It is finding it hard to recover from that hit.
Households that earn between Rs 100,000 and Rs 200,000 a year account for a little less than 45 per cent of all households. Their share in total households has not changed much because of the pandemic. But since the share of those below Rs 100,000 has increased, implicitly, many who belonged to the Rs 100,000 to Rs 200,000 group slipped to the lower group and many households that earned more than Rs 200,000 slipped into this group. On a net basis, the group’s share remained largely unchanged in spite of household incomes sliding. Consumer sentiments of this group fell by 7.6 per cent in December 2021. The fall breaks a slow but steady trend in improving sentiments after the fall caused by the second wave of Covid in May 2021.
Evidently, while the top half per cent saw a spurt in consumer sentiments, the bottom half of households by income saw their sentiments decline in December 2021. The ones in between these two groups did not see a significant fall but they did not see any perceptible improvement either. We have two groups between the top half per cent and the bottom 50 per cent.
Households that earn between Rs 200,000 and Rs 500,000 account for a sizeable one-third of all households. Consumer sentiments of these have stagnated since October 2021. Sentiments improved by a negligible 0.3 per cent in December 2021. They were still 44 per cent lower than they were during 2019-20.
Households that earned between Rs 500,000 and Rs 10 lakh also witnessed a stagnation in consumer sentiments since October 2021. These households saw a small, 1.4 per cent fall in the index in December 2021. The index was nearly 47 per cent lower than its level in 2019-20.
A summarisation of the above can be thus: The richest half per cent celebrated the relaxations in December 2021; the bottom half were despondent; and the rest were unimpressed either ways. With the arrival of Omicron in January, sentiments may get dampened across the income spectrum. That could delay the recovery of the Indian economy from the hit of Covid-19 and its variants.
The writer is MD & CEO, CMIE P Ltd