After growth in July 2021, consumer sentiment falls in August: CMIE data

Update: 2021-08-25 05:55 GMT

The first two weeks of August have not been good for consumer sentiments, shows Centre for Monitoring Indian Economy Pvt. Ltd. (CMIE) data. The index of consumer sentiments (ICS) fell 1.6 percent and by two percent in the first and second weeks of August respectively.

The ICS improved by 10.7 percent in July 2021, over its level in June 2021. In February 2020, the index was at 105.3. The July 2021 index was also lower than its level during each of the five months from December 2020 through April 2021, when the index averaged 54.7. But, the first two weeks of August have not been good for sentiments.

“The second wave of COVID-19 had dragged down the ICS to around 48 in May and June 2021. July saw a smart but still incomplete bounce-back. Thus, while the recovery in July was impressive, there is still a long way to go for the sentiments to come back to pre-pandemic levels,” said CMIE MD Mahesh Vyas.

The next best recovery was in the segment that has the best buying power, the rich. “Households that earn more than a million rupees a year registered a healthy improvement in sentiments in July. Their ICS grew by 16.6 percent to 63.3. This growth is not anywhere close to the 46 percent growth in sentiments of the poor,” said Vyas.

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Besides, the sentiments of the richer households have recovered the most from the fall induced by the COVID-19 pandemic compared to other income groups. The ICS for this group in July 2021 was 60 percent of its level in February 2020. Other groups are mostly around 50 percent of their February 2020 level.

“This group of rich households consists of about three million households. Their numbers have dropped from about four million before the pandemic. Month-to-month variations in the ICS of the richer households have been volatile,” said Vyas.

Lower middle-income households, with an annual income in the range of one to two lakhs, had lost substantial ground in the quarter that ended on June 2021. Their ICS fell from 53.6 in March 2021 to 44.5 in June 2021. In July, the index bounced back to 49.9 implying an increase of 12.1 percent over the June 2021 level. Although this is a respectable increase in a month, the recovery in sentiments of this group from the pandemic has been unimpressive.

Households in the upper middle-income group those that earn between half a million and a million rupees, form a relatively small group of only about 20 million households. They saw a 7.8 percent improvement in sentiments.

The largest income group is the middle middle-income group. These are the households that earn between two to five lakhs rupees. This group consists of a little over 160 million households. They saw the lowest growth in sentiments during July, a mere one percent increase over June. This big group of households has also seen the least recovery from the fall from pre-pandemic levels.

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While the recovery in sentiments in July is impressive, it needs better traction in the critical income groups. The recovery in richer households needs to be less volatile and the recovery needs to reach middle income households better.

“The ICS improved for households with relatively modest income and for the rich in July but once again fell in August. Households that earn less than ₹100,000 a year saw a 46 percent improvement in sentiments. This segment saw the best recovery during July. These households had suffered the most in May when the second wave struck India,” said Vyas.

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