ExplainTalk | India’s Economic Recovery: To What Extent Does Public Perception Meet Experts’ Expectations?


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Dear readers,

Last week India’s central bank, the Reserve Bank of India, released its October “Bulletin”. Each of these monthly bulletins contains a crucial chapter titled “The State of the Economy”. This chapter is followed closely by observers as it provides the most up-to-date and comprehensive overview of the Indian economy.

This month’s summary was particularly noteworthy as it contained both data from the latest World Economic Outlook from the International Monetary Fund as well as internal RBI surveys that map consumer sentiment in the country. Together, they not only provide a good way to understand whether public perceptions (of current economic growth) and expectations (of future growth) match what RBI and IMF experts see and expect, but present. also a way to understand how Indians view the economy today compared to any other time in the recent past.

To set the context, you have to look at what the experts expect. The IMF predicts that India’s economic recovery will be quite robust in the current fiscal year (GDP growth expected to 9.5% in 2021-2022), which is expected to hold over the next fiscal year (a 8.5% GDP growth in 2022-2023). Take a look at the chart below, sourced from the IMF and featured by the RBI in its October newsletter. It maps the expected rates of rise and fall of the GDP growth rate in different economies.

The graph maps the expected rates of rise and fall of the GDP growth rate in different economies.

To better understand these growth rates and their implications, take a look at the chart below, which fixes each country’s GDP in 2019 at 100 and then shows where a particular country would be by the end of 2022. That allows us to see that while India’s economic recovery is expected to be below the global average by the end of 2021, it will exceed the global average by the end of 2022. If this happens, it would not be no big deal given that, as the graph shows, India may have been the hardest hit of all the major economies due to the Covid pandemic in 2020. Experts expect the upturn in India is so strong that it will exceed not only the world average – relatively speaking, referring to where each affected country was in 2019 – but also most of its peers like Brazil, South Africa , Russia etc. China is the only exception.

India’s economic recovery better than the world average

How does this compare with the public perception of the general economic situation of the country and related variables?

The RBI’s Quarterly Consumer Confidence Survey (CCS) for September 2021 is a practical guide.

This survey was conducted by means of physical interviews, between August 29 and September 7, 2021, in 13 major cities, namely Ahmedabad; Bangalore; Bhopal; Chennai; Delhi; Guwahati; Hyderabad; Jaipur; Calcutta; Lucknow; Bombay; Patna; and Thiruvananthapuram.

The survey obtained the current perceptions (compared to a year ago) and expectations a year in advance on the general economic situation, the employment scenario, the overall price situation and income and own expenditure of 5,237 households in these cities.

The way these surveys are done is that for any variable – say inflation or income – the RBI asks people if they think the situation has improved over the past year or has deteriorated. Likewise, he asks if people expect the situation to get better or worse in the coming year.

In the charts below, we’ll look at the “net responses” for five key economic variables. The net responses essentially map the difference between the percentage of people who think the situation has improved (or will improve) and the percentage of people who think the situation has gotten worse (or will get worse). So if the net answer is in the negative area, that means the percentage of people who think things have gotten worse (or will get worse) – say on the inflation front – is higher than the percentage of people who think things have gotten worse (or will get worse) – say on the inflation front – is higher than the percentage of people who think things have gotten worse. things have improved (or will improve). For example, if 10% of people say that the inflation rate will go down in the coming year and 85% of people think it will increase further (while 5% say it will not change) , the net response will be minus 75%.

As you examine the graphics below, notice four key elements.

One, whether the net responses are in negative or positive territory. Two, how negative or positive they are. Together, these two characteristics will tell you what most people think.

Third, notice the difference between current perception (i.e. state of today versus a year ago) and future expectations (i.e. today versus compared to what people think things will be in a year). Typically, a widening gap between the two lines reflects poorly. Finally, you need to indicate whether these trend lines are going up or down.

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The graph below maps the net responses for the general economic situation. As both lines improve, it is a fact that current perception and future expectations are still at one of the lowest points since 2012. It is a relief that the sharp responses to future expectations on the India’s economic situation are positive – implying more people expect it to be better than it is today.

Perceptions and expectations of the general economic situation

The graph below maps out the net responses to employment. Again, the current perception is in negative territory, implying that more people think the job is worse than it was a year ago. Future expectations are in positive territory but notice, again, this level of net responses (8%) is lower than a year ago (23%). In other words, compared to September 2020, fewer people expect an improvement in employment prospects in September 2021.

Perceptions and expectations about employment

The chart below examines another big cause for concern for Indians: inflation. The first thing to notice in this graph is that the net responses for current perceptions as well as future expectations have been in negative territory for the past 9 years. In other words, at any time since September 2012, more people felt that inflation had risen over the past year and more people expected inflation to rise over the past year. coming year. This explains why Indians can have a rather yellowish outlook on inflation. The worst part is that, unlike the previous charts, which showed an upward trend, in this chart both lines are pointing down, implying that more and more people are feeling the pinch in inflation. .

Perceptions and expectations about inflation

If inflation has increased, what is the income collection?

The graph below represents the net income response. The first thing to note is that an overwhelming percentage of people continue to report their incomes are lower than they were a year ago; the current perception of line mapping continues to languish at the bottom. Second, while expectations of net responses for a year ahead are in positive territory – meaning more people expect to earn more in a year – but this percentage of net responses (31%) is lower. than it was a year ago (43%). The much larger gap between the two lines shows increasingly unfulfilled expectations.

Revenue Perceptions and Expectations

Finally, we map a key variable – spending on non-essential items. Typically, a rapidly recovering economy would see more and more people spending (and, more importantly, wanting to spend) on non-essentials. The chart below tracks the net response to non-core spending. It is quite worrying that both on current perception and on future expectations, the clear answers lie in negative territory. The good thing is that both lines are trending up, but the point is, both are still pretty negative. For example, the percentage of people who reported spending less on non-essentials in September 2021 (compared to September 2020) was 52 percentage points higher than the percentage of people who reported spending more than one. year. In terms of future expectations as well, while the net responses have been better than they were in July 2021, they are much worse than they were in September 2020.

Perceptions and expectations on non-essential spending

The result

While most experts expect India to post an above-world average economic recovery over the coming year, public perceptions of key economic variables – such as inflation, jobs, income and expenses – is much less optimistic.

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