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As the second surge of infection and fatalities surges ahead, less money and more apprehension mark the average Indian middle-class consumer.

As more and more companies are flagging dipping consumer spending across sectors, economists are warning that a dim outlook about the future near and medium-term future might prolong the consumption slowdown and delay the recovery when the infections ebbs and the states lift restrictions on mobility.

Survey

“Last year the recovery in consumer spending was V shaped. The recovery after the second surge might be U-shaped. After it hits a low, it will take longer to recover,” said Yuvika Singhal, economist with QuantEco Research that tracks data on the economy on a weekly basis. She said was not very hopeful of a recovery before the second half of FY22.

Others went back a step and questioned the generation of disposable income.

Many companies in the FMCG and consumer durables sector have already flagged dipping sales and apprehensions of long time-windows for a revival of expenditure.

Flat job scenario

“The source of disposable income with the middle-class is mostly salary. With job scenario remaining flat due to Covid generation of disposable income remains a question in the first place. Consider also the fact that technology disruptions will increasingly cut jobs. Given these possibilities, propensity to save may increase and, therefore, it may take a while for spending to spike,” said Dr Arindam Saha, a former commodity trading professional who has founded AI-led tech firm Vista Intelligence with European venture fund.

Saha’s point about the job scenario is borne out by unemployment data. Joblessness is rising fast with major states imposing restrictions on mobility.

Unemployment

According to CMIE data, unemployment rate has risen to 7.97% in April up from 6.5% in March. The 30-day moving average put unemployment rate at 9.5% on May 18 with the figures at 11.4% in urban India and 8.6% in the rural areas.

On May 17, QuantEco Research published a report that highlighted the reasons for a possible delay in recovery which stated that the focus has shifted away from consumption.

Deeper shock

“The shock is probably more in the second wave. The forced savings that was made since citizens hardly had any avenues to spend was there in the first wave. Therefore, people spend with vengeance when the lockdown was lifted. This time people are saving for the rainy day with a completely different outlook,” said Singhal.

She also added that the pent-up demand witnessed last time is not going to happen this time since the demand has been largely satiated and the apprehension factor.

“Rural demand, which was a saviour last year, might be impacted this year if the infection spreads to rural India,” remarked Singhal, arguing the recovery in consumption is likely to be delayed.

That consumer confidence was ebbing in March compared to January 2021 was flagged in a consumer survey carried out by Reserve Bank of India.

In April, a survey by Refinitiv, one of the world’s largest providers of financial markets data, found that consumer confidence was dipping in India across employment, economy, personal finance and investments. That was a time when the number of COVID cases were rising at a furious pace.

Economists said that in 2020, many just remained at home and could not spend due to supply constraints and mobility restrictions. But this time, the difference is people are panicking and have prioritised expenditure, conserving funds and preparing for medical exigencies.

Healthcare concerns

“You never know when you would need to pay 10 times for an oxygen cylinder in the black market. Common sense dictates that one does not buy an automobile, or a consumer durable, and saves cash,” said Prasunjit Mukherjee, chief ideator, Plexus Management Services, an investment advisory firm.

“All the economic indicators are working in favour of a long-drawn bottom of a U-shaped curve. Given that we have no idea of how long the second wave is going to last, jobs are being affected. With jobs gone and slashed wages, disposable income is going down with a concomitant rise in the need of an emergency fund for healthcare requirements. Moreover, this time the infection is spreading in the rural sectors, which might impact rural demand too,” said an economist with HSBC who is not authorised to speak to the media.

Positives

However, Mahananda Kanjilal, who teaches Economics at Calcutta University, had a slightly different point of view.

“There are a few positives too. Since the lockdown is not across the nation leaving the states to decide on restrictions according to local conditions have a positive effect. Some industries are working, though with fewer workers. Some labour-intensive sectors such as restaurants are working with better attention to hygiene and sanitisation. Home loan interests have been brought down to revive demand in this crucial sector,” said Kanjilal.

“Online deliveries are going on in full scale and like many business leaders I am inclined to think that the impact of the second wave will be less severe,” added Kanjilal, who also counted on the progressing vaccination.

“We think about 50% of the population will get a dose of vaccines by the end of the year,” said Singhal.

Global view

The Indian experience on expenditure seems to be following the trend predicted by a researcher of J P Morgan in November 2020.

In the next 12-24 months, consumers are going to be left with less money in their pocket. Many people will be left unemployed and will have less to spend. This will reinforce the trend for staying at home. We could also see some downgrading as consumers settle for more affordable options, though for now we have seen consumers buying big brands and, choosing household names over value or private label products,” said Celine Pannuti, head of European Staples and Beverages Research as JP Morgan.