Monsoon effect: Consumer sentiment turns corner in July, rural India upbeat

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Consumer sentiment has turned around in July registering an improvement of 12.2% over the last three weeks since June 27 with rural India witnessing a significant improvement compared to urban owing to revival in monsoon, the Centre for Monitoring Indian Economy said.

Data from CMIE shows cumulative consumer sentiments improved by 17% cent during the past three weeks in rural India while the increase was a modest 1.7% in urban India during the same period.

“The recent improvement in consumer sentiment is almost entirely a rural India story and could be the result of a revival in monsoon,” CMIE said in its weekly labour market analysis.

The index of consumer sentiments for rural India scaled up by 4.3% in the week ended July 4, by another 6.5% in the week ended July 11 and by 5.4% in the week that ended on July 18.

Consumer sentiments in urban India, however, fell by 4.2% in the week ended July 4 before improving by 6.1% in the week ended July 11 and then remained flat in the week ended July 18.

As per CMIE, the rural-urban divergence in consumer sentiments reflects the movements in employment in the two regions. The employment rate improved by 6.7% in the first three weeks of July in rural India while urban India saw a much smaller improvement of 1.5% in the employment rate in the period under consideration.

Consumer sentiments, badgered by the second Covid-19 wave, had been falling steadily from the beginning of April 2021. It fell more than 20% from its recent peak of 58.5 on March 28 to a low of 46.5 on June 27 after which it started bottoming out as economic activity picked up pace.

CMIE further said that although rural households do not yet reflect optimism on their current economic conditions they have started showing greater confidence in the future.

As per CMIE, the proportion of rural households that expect their incomes to improve in a year has gone up from 2.5% to 3.2% during the last three weeks. “This is abysmally low but the consolation in the numbers is that they are moving in the right direction,” it said.

Further, the proportion of rural households that expect the financial and business environment to improve in the coming twelve months has increased from 2.8% to 4.7% and the proportion of households that expect financial and business conditions to improve in the coming five years has increased from 2.8% to 4.5%.

However, improvement in sentiments is not translating immediately into willingness to buy. “There is still some distance in the future before consumer goods companies see an increase in the number of households willing to buy,” it concluded.

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