MOSL: Fuel or Engines (Economy)-What does RBI’s consumer confidence survey suggest?-Adjustments to widening divergences key to future growth

​Fuel or Engines (Economy): What does RBI’s consumer confidence survey suggest?; Adjustments to widening divergences key to future growth

“Fuel or Engines” is our new monthly product, in which we intend to expand our consumption v/s investment theme. This is an extension to our ‘India 2020’ report released in June 2016.

• Inflationary expectations, as reflected by the households survey conducted by Reserve Bank of India (RBI), has always been an important variable taken into consideration during the monetary policy meetings. However, the consumer confidence survey (CCS) for November 2017, which is conducted among households across various cities, has revealed some conflicting trends.
  
• According to the results of the recent survey, while households’ one-year-ahead expectations of income and employment are at the lowest level in four years, an overwhelming majority of respondents (second highest on record) expects spending to improve next year. Moreover, while the current perception (vis-à-vis a year ago) on income and employment is the worst on record (more respondents expect a decrease than increase), a record-high proportion of respondents has reported higher spending. 
  
• Such widening divergence (i) between current situation and households’ expectations of income/employment and (ii) between consumption spending and income/employment is unsustainable. The adjustments to these divergences will determine the future trajectory of economic growth. If the outlook on income/employment does not alter positively, consumers will most likely revise down their spending outlook, creating more risks to real GDP growth.