The RBI’s Consumer Confidence Survey shows that the Current Situation Index declined by 4.6 per cent in November 2017 compared to its level in September 2017. By a similar comparison, the Future Expectations Index fell by 3.5 per cent.
RBI’s surveys are periodical and not continuous. So, comparisons can be made only with previous similar surveys conducted by RBI. The latest survey by RBI was in November 2017 and the one immediately before this was in September 2017.
The BSE-CMIE-UMich survey on consumer sentiments is similar to the RBI’s consumer confidence survey but is conducted continuously. We had reported last week that the BSE-CMIE-Umich consumer sentiment index showed a smart increase in November 2017 along with a host of other similar indicators that showed the economy improving its situation. In contrast, RBI surveys suggest a worsening of consumer confidence.
The difference in inferences can be narrowed down easily.
First, while the BSE-CMIE-UMich indices cover rural and urban areas, the RBI surveys cover only urban areas. Further, RBI surveys are limited to only six metropolitan cities - New Delhi, Mumbai, Kolkata, Bangalore, Chennai and Hyderabad. In contrast, the BSE-CMIE-UMich survey is based on a much larger set of towns. The overall survey is based on 325 towns but in a month typically 95 towns are surveyed. The towns surveyed in a month necessarily cover very large towns, large towns, mid-sized towns and small towns.
While the RBI sample was 5,244 respondents, the BSE-CMIE-UMich survey is based on a much larger sample of about 27,000 respondents from urban India in a month.
The biggest difference in the two surveys, of course, is that while the BSE-CMIE-UMich survey includes responses from rural India, RBI’s surveys do not.
This difference in coverage explains the variation between the outcomes of the two surveys.
The BSE-CMIE-UMich consumer sentiment index is not much in disagreement with the RBI survey. While the latter shows a 4.6 per cent fall in the urban current situation index of November compared to the index of September, the former shows a 2.7 per cent fall in the index of current economic conditions. CMIE’s current economic index corresponds to RBI’s current situation index. So, both agree that there was a significant fall in the urban index of current conditions. The difference is in degree and not in direction or even the fact that the fall was substantial.
While the RBI survey saw a 3.5 per cent fall in the index of future expectations in November over its level in September, the BSE-CMIE-UMich index of consumer expectations saw a small increase of 0.3 per cent.
It is possible then that while sentiments were down in urban India in November compared to September, they were more negative in the larger metropolitan cities (as seen in the RBI survey) than in the smaller towns, which are covered in the BSE-CMIE-UMich survey.
Further, the situation changes completely when we include rural households. Rural India shows a substantial 6.8 per cent increase in the index of current economic conditions and a significant 3.7 per cent increase in expectations. Rural India is much bigger than urban India and so this starkly different perspective of the rural folks has a much larger bearing on the overall index of consumer sentiments. And, this is what swung the overall index.
As a result, while the RBI index of current situation shows a 4.6 per cent fall, the BSE-CMIE-UMich survey shows a 3.3 per cent increase.
The comparison illustrates the importance of conducting fast-frequency measures of sentiments. This can be extended to many other economic indicators. Economic conditions change rapidly and expectations change correspondingly. Technological solutions riding on the fact that India is well covered today with a reasonably reliable Internet allow us to conduct nation-wide fast frequency surveys at reasonable costs.
We need not use dated information anymore. For example, November is behind us and we need to wake up to the fact that while sentiments were running high in November they weakened towards the end of the month. In the last week of November and towards the beginning of December they fell 4.5 per cent. But, they regained some ground in the last week - ended December 10, when they rose by 1.3 per cent.
By now, you shouldn’t be surprised that BSE is a partner in the making of these indices. The financial markets demand fast-frequency information. The rest of us can take a free ride as BSE also ensures that this information is freely available as a public good to all.
First Published in Business Standard Link