Rural India leads uptick in consumer sentiments

Consumer sentiments improved a bit in November 2023. Rural India saw a much better improvement than urban India. Urban India turned circumspect on its future while rural India seemed to repose greater faith in the coming times. This is because of a healthy increase in optimistic rural households. However, while there is an increase in optimists, there is also an increase in pessimists regarding the coming 12 months across rural and urban regions.

The Index of Consumer Sentiments (ICS) inched up by 1.4 percent in November 2023 after having risen by 4.3 percent in September and 2.9 percent in October. The festival of Diwali ended early in the November. Diwali was celebrated on November 3 and the 30-day moving average of the ICS peaked on November 2. The ICS started to decline gradually since then but on an average, it remained a bit higher than its level in October.

Past trends indicate that the ICS tends to lose steam during November-December. In comparison, the ICS has done quite well in November this year. December 2023 has also begun on a positive note this year.

In November 2023, the 1.4 percent increase in the ICS is equally spread across sentiments regarding current economic conditions and future expectations. Both grew by 1.4 percent.

But, the gain of the ICS in November was significantly divergent across rural and urban regions. Rural India saw the ICS rise by a handsome 2.1 percent. This is particularly impressive because it was the third consecutive month of good monthly growth of sentiments in the rural parts. September and October had seen the rural ICS rise by 4.9 and 2.4 percent, respectively.

The ICS growth trajectory in urban India has been far less impressive. After having risen by 3.8 percent in September and 2.8 percent in October, it barely managed to grow in November. The urban ICS clawed a meagre 0.3 percent increase during the month.

Urbanites turned wary regarding their future. The urban Index of Consumer expectations (ICE) was down by 0.8 percent in the month. This reflects, to a great extent, pessimism regarding future earnings which in turn reflects a steady rise in the unemployment rate in urban India. The urban unemployment rate has been averaging around nine percent in recent months. The four-month average unemployment rate in urban India was 9.2 percent against 8.3 percent in rural India.

In November 2023, 33.1 percent of the urban households believed that their incomes a year later would be higher compared to their current incomes. This proportion is lower than 34.1 percent who believed that their incomes would rise in a year during October or the 33.9 percent who believed similarly during September. There is therefore a perceptible fall in recent times in the optimism of urban households regarding their own future incomes.

In November 2023, there was also a small rise among the urban pessimists. The proportion of households who believed that their incomes would decline a year into the future increased a tad from 12.9 percent in October to 13.1 percent in November.

Urban households have similarly turned pessimistic on overall financial and business conditions in India in the coming 12 months and also in the coming five years.

The rise in urban unemployment has also partially impacted the perception among urban households regarding their current incomes. During November 2023, 38.9 percent of urban households stated that their incomes were higher than a year ago. This is almost the same compared to the 38.8 percent urban households who had responded similarly in October 2023. In the preceding two months, this proportion had increased by 3-4 percent. Now, it has stagnated.

In contrast to the sombre mood reflected in urban India, the hinterlands seem upbeat, particularly of their future. The rural Index of Current Economic Conditions was up 1.9 percent in November and the rural Index of Consumer Expectations was up by 2.3 percent. Contrast the latter with urban India’s -0.8 percent. Rural unemployment had peaked at 10.8 percent in October. It receded substantially to 9.1 percent in November. These are still very high unemployment rates for rural India which usually sees an unemployment rate of around 6-7 percent. Yet, the big fall seems to have impacted sentiments.

Rural India reported a sharp fall in the proportion of households that reported a worsening of their own incomes in the coming year. There was also an increase among those who reported an improvement. They also reported a significant increase in confidence in India’s long-term prospects.

Across rural and urban India, the proportion of households that expected financial and business conditions to worsen in the coming 12 months increased. In urban India, this proportion rose from 13.8 percent in October to 14.8 percent in November. In rural India, it rose much more from 13.5 percent to 15.6 percent.

Thus, we see households reporting simultaneous increase in divergent trends regarding the 12-month economic prospects in India in both, rural and urban regions. On a net basis, the 12-month sentiment has worsened. But the five-year sentiment has improved.

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