Economy

Slow recovery

Indian economy will see a slow recovery in 2021

It’s bad news for Indian businesses. CMIE (Centre for Monitoring Indian Economy) predicts that Indian consumers will spend less in the coming months. It means slow recovery.

The consumer sentiment index (which has a base of 100 in September-December 2015) was at 55.1 in February 2021. A year ago it was at 105.3. Average household income in the first quarter of 2020–21 is 33% less than the same quarter of the year 2019–20. The consumer index is 59% less than the last year. Partial improvement in household income is not translating into consumer sentiments. Only 5% percent of the people feel it is the right time to buy consumer durables. Before lockdown, 30% thought the same.

Economist Mahesh Vyas (CEO, CMIE) writes: Consumer sentiments are important because they reflect the intangible component of households’ economic decisions. These are decisions to buy non-essentials such as homes, cars, two-wheelers or refrigerators. Sentiments also influence households’ decision on making long-term investments. Incomes may rise to recover lost earnings of the lockdown or asset prices may gallop past rationality but if households do not feel good about their own current and future economic well-being they are less likely to spend even if they get wealthier. Consumer sentiments matter.

Most economies will only return to pre COVID levels by 2022. Independent businesses should not buy false claims of fast recovery. The path ahead is difficult.