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Demonetization Impact on Consumer Confidence

While the jury is still out on the futility of the humongous exercise of Demonetization, recent RBI data points to huge impact on consumer confidence. It does not require mention that such an impact on confidence surely spills over on the growth of economy as well. While there is a raging debate on the GOI GDP figures, the RBI survey report brings in stark reality from ground zero.

The demonetization exercise was at its peak from early Oct-2016 to mid of Jan-2017.  Generally the impact is always with a certain lag and that is clearly evident from the analysis.

Consumer Confidence Survey Analysis

Current Situation Index

The CSI shows a drastic drop buckling the initial increasing trend. From 4.5 point increase, it drops sharply by 6.7 points thus eroding the earlier gains. The impact is visible in Dec-16, by when the impact of demonetization would have got reflected with a lag

Perception on Income & Spending

The most dreadful impact is seen in ‘current perception on consumer level of Income’. From a strong positive, it is barely positive in Dec-16. Obviously the drying up of cash had an impact on spending as well, though to a much lesser degree

Confidence on General Economic Condition & Employment

Similar to current confidence on income, the confidence on general economic condition & employment worsened. The degree of plunge is like never seen before.

Recently there has been a significant advertisement effort being given on Remonetization espousing the cause of more spending by consumer. While that is what may augur well for the overall economy, it may not be a practical expectation considering the significant dent on the consumer confidence on the level of income and employment. The consumer confidence dented by such a mammoth, painful exercise of demonetization may well need a similar positive mammoth exercise to bring it at par with original level. The growing disquiet on the NPA front, lack of bank credit growth are some other indicators of the challenges at the ground. While GOI may be trying hard to buttress its confidence through GDP figures, a real impact on consumer confidence can come only from more positive changes on the ground.

Source:

  1. RBI Consumer confidence survey, Latest published on Feb-2017
  2. https://rbi.org.in/Scripts/QuarterlyPublications.aspx?head=Consumer+Confidence+Survey

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