The MNI India Consumer Sentiment Indicator fell to 118.5 in March from 121.2 in February, the lowest level since September 2013 when the economy was mired in a currency crisis. The fall in consumer sentiment wiped out the gains made over the previous two months, raising doubts about the pace of recovery of the economy.
Tax measures announced in the Budget may well have dented sentiment. A hike in the service tax will make going to restaurants, beauty salons, theatres, amusement parks as well as air travel and phone services more expensive. The fall in sentiment also came in spite of the early March rate cut by the central bank which came early in our survey period.
All five components of the Consumer Indicator declined in March, led by a fall in the Durable Buying Conditions Indicator which provides a guide to consumer spending. Lower levels of inflation and interest rates are seemingly not convincing consumers to shell out on big-ticket items. Both measures of Personal Finances, current and expected, declined in March with the latter leading the decline and falling to the lowest since September 2013.
While overall consumer sentiment remains above the 100 breakeven level, meaning that optimists outnumber pessimists, it still lies below the series average of 123.1 and was down 5.8% on the year.
The Budget at the start of the month failed to increase optimism that the new government will put in place policies to tackle India’s economic issues over the long-term. Expectations for Business Conditions in Five Years fell to the lowest since October 2013. Expectations for conditions in a year’s time also dropped and continue to run below the average seen throughout 2014 and the long-run average.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “The March survey was disappointing with consumer sentiment resuming its downward trend. Consumers have seemingly reacted negatively to the announcement of the service tax hike in the budget and have also become more pessimistic about the long-term economic outlook.”
“While the Reserve Bank of India chose to leave interest rates unchanged at its April meeting, our survey evidence from both consumers and businesses suggests downside risks to growth are increasing. On balance we expect the central bank to ease monetary policy further over the coming months.”