GDP growth outlook and consumer sentiments down while Inflation up

September 13, 2023
Posted by: OptimizeIAS Team
Category: DPN Topics

GDP growth outlook and consumer sentiments down while Inflation up

Subject :Economy

Section: Inflation

Context: Centre for Monitoring Indian Economy’s (CMIE) Economic Outlook, reports dip in consumer sentiments, along with elevated inflation and low growth outlook.

CMIE Consumer sentiments Index

This Consumer Pyramids survey are measured on the lines of the work done in this regard by the Survey Research Center at the University of Michigan. This effort, called the Survey of Consumers, began in 1946 and has produced several measures that are well established lead indicators in the US.
Five questions are asked to measure consumer sentiments.
- The first two questions pertain to consumers perceptions regarding their current well-being and expectations of their futurewell-being.
- The next two questions take into account perceptions that consumers have regarding current and prospective economic conditions of the country as a whole.
- The last question is with respect to the household’s propensity to spend on consumer durables around the time of the interview.

Key Points:

Consumer sentiment:
- According to the CMIE’s Economic Outlook, consumer sentiments fell by 1.5 per cent in August 2023.
- With these months being start annual festive it is a concerning development.
- Consumer sentiments were rising every month since January 2023. The average monthly growth in consumer sentiments in India during the January-July months of 2023 was 2.6 per cent.
- Consumer sentiments can have a real impact on the economy and Indian businesses who are gearing up for making the best sales of the year in the forthcoming festive season.
- That’s because one of the key constituents of CMIE’s consumer sentiments index is the consumers’ intention to buy consumer durables.
- The sentiment for rural consumers and it has been negative for the past three months. That shows that sentiments are significantly worse in rural India.
- The proportion of households that said that they expect their household income to rise a year into the future fell from 25.6 per cent in July 2023 to 23.7 per cent in August
Inflation projection:
- India’s retail inflation eased slightly to 6.83% in August, from the 15-month high of 7.44% in July, but the rise in food prices remained elevated at around 10% and rural consumers continued to face over 7% inflation.
Growth outlook:
- India’s GDP growth outlook India’s potential GDP growth rate has steadily come down from around 8% just before the Global Financial Crisis of 2008-09 to just 6% before the Covid pandemic.
- The bump in India’s GDP growth rates immediately after the pandemic hit year of 2020-21 is, to a great extent, illusory because these high rates are coming because of a lower base.

How far did the government’s recent cut in LPG prices help the family budgets?

According to CMIE’s Consumer Pyramids Household Survey, in 2022-23, on average Indian families spent Rs 8,500 on cooking fuel. To be sure, the Rs 8,500 assumes the annual use of 6 LPG cylinders on an average.
So as a proportion of the expenditure on cooking fuel, the cut is expected to bring a relief of 14% , according to CMIE, expenditure on cooking fuels accounts for only 4.8 per cent of total households consumption expenses.
As such, the net impact of the LPG price cut on average family budgets was less than 1% (0.7% to be precise, 14% x 0.04)

Potential GDP:

The potential GDP growth rate of an economy is the rate at which its GDP can grow without causing high inflation.
Potential GDP is a theoretical construct, an estimate of the value of the output that the economy would have produced if labor and capital had been employed at their maximum sustainable rates—that is, rates that are consistent with steady growth and stable inflation.

Understanding base effect

When something initially at value of 100 falls by 25%, and becomes 75.
A subsequent 25% increase only comes up to 93.75 — that’s more than 6% below the original number.