First year of Modi government: Demand up, income growth flat, research reveals

Source: Economic Times

One year is a small yardstick by which one can measure the performance of a new government. But as the Modi government braces the one year milestone, its report card from the consumption and consumer sentiment point of view reveals a mixed picture.

Research undertaken by Nielsen shows that income, especially among businessmen, has remained flat and there’s only a marginal increase among the salaried. Consumer sentiment, however, shows an improvement due to the drop in inflation.

Consumption (including all household expenses), which according to Nielsen, had risen from 68% of income allocation in 2010 to 71% in 2013, has reduced to 67% in 2015. Savings, which had reduced from 20% of income allocation in 2010 to 17% in 2013, has risen to 19% in 2015. Investments, on the other hand, have increased from 12% in 2013 to 15% in 2015.

”The urban Indian has seen ups and downs in consumer sentiment over the last few years. Overall this is a reflection of global and Indian economy with inflationary pressures impacting consumer spending, manufacturing and industry across sectors. Over the last year, the new government has set in place reforms and stimulus, and the economy is easing slowly and steadily,” said Piyush Mathur, President, Nielsen India Region.

In an Ipsos Economic Pulse Survey, a higher percentage of Indian citizens (82%) said the current economic situation was good in April 2015. In the same month last year, this percentage was 60%, which clearly indicates a big vote of confidence in the Modi government.

However, the improved sentiment does not reflect in the increase in consumption numbers or the credit growth. ”Never mind the 8% projected growth rate, the companies especially in manufacturing sector aren’t convinced that the new government has turned around the economic situation. In stark contrast to the Indian corporate pessimism, the Ipsos Economic Confidence survey is showing signs of recovery,” said Bhasker Canagaradjou, head – Ipsos Business Consulting, India.

”The Modi government has to manage the irrational exuberance with the rational optimism,” said Canagaradjou.

The general feeling is that the current initiatives and measures alone would not be enough to revive the corporate and consumer sentiment. Job creation would be the resultant benefit from an economic revival.

For now, it’s a wait and watch to see whether Modi Ver.2.0 takes a pro-corporate or a pro-consumer stand.

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