There is a yawning gap between the confidence of consumers and businesses
- India Inc is the most hopeful it has ever been in 20 years in terms of growth prospects and profit margins.
- Consumers are worried about their incomes, and more stressed about inflation than they were before the pandemic began, says a report by
- Never ever in the past has there been such wide divergence between the current assessment of the businesses and consumer sectors, the report says.
AdvertisementIndia’s economic future is sandwiched between optimism of businesses – which is buoyed by improving macro economic factors – and the pessimism of consumers who are worried about incomes and inflation.
According to Motilal Oswal’s report, India Inc is the most hopeful it has ever been in 20 years in terms of growth prospects and profit margins. Consumers, however, are nowhere close to these sentiments.
“While the consumers’ spending outlook is bleak, businesses appear very confident of maintaining a strong order book. Consumers continue to remain considerably less optimistic than the pre-Covid period,” said the Motilal Oswal report based on the central bank’s industrial outlook and consumer confidence surveys on the first half of FY23.
Consumer confidence almost halved after the pandemic began, and so did industrial outlook. While the latter posted a dramatic recovery, consumer confidence remained low even in the first quarter.
“Never ever in the past has there been such wide divergence between the current assessment of the businesses and consumer sectors. It is obvious that only one of these two agents will prove right in the future,” Motilal Oswal says.
Fast track mode or not?
Some of the industrial growth confidence could have come from corporate performance which shows signs of a recovery, according to a Bank of Baroda economics research report on Q1 performance. The report says that the positive Q1 performance tempts a conclusion that it’s on a fast track mode — but a deeper analysis does reveal a base effect on these numbers.
“Nonetheless, it may still be fair to conclude that the worst is behind us and that several sectors are on the fast track while others continue to face some challenges,” the BoB report said.
Consumers, on the other hand, have seen no such signs of their own incomes, and are more stressed about inflation than they were before the pandemic began. Even as most corporates tend to say that their hiring sentiment is high, consumers remain worried about their job outlook.
In July, urban unemployment rate jumped to 8.2% from 7.8% in June though overall unemployment rate lowered due a pick up in agricultural activities.
AdvertisementMotilal Oswal hopes that the optimism showed by the businesses becomes a reality, but believes that consumers may remain cautious, as their financial position deteriorated significantly.
“If so, the expectation of a strong order book may actually reflect a shift in the market share from the unlisted/unorganized/small to listed/organized/large companies, rather than the general broad-based improvement in the real economy,” the research firm said.
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