1. Introduction

The Reserve Bank has been conducting Consumer Confidence Survey (CCS) of households on a quarterly basis since June 2010. The survey captures qualitative responses on several questions inter alia those pertaining to economic conditions, income, spending, prices, and employment prospects of the households. The survey results are based on the views of the respondents and are not necessarily shared by the Reserve Bank of India. The responses are obtained for two reference points, viz., current situation as compared with a year ago and expectations for a year ahead. The quarterly survey results of CCS are released regularly on the RBI website. This article presents analysis of survey results covering a longer time period, with particular focus on the latest four quarterly rounds (Q2: 2015-16 to Q1:2016-17) of the survey.

2. Sample Coverage and Survey Questionnaire

The survey is conducted in six metropolitan cities viz., Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi. In each round of survey, 5,400 respondents are selected (900 respondents from each city), using a hybrid two stage sampling design. At the first stage in a city, the polling booths are selected by systematic random sampling after arranging all polling booths according to their constituencies. In order to ensure wide geographical coverage, 45 polling booths spread over the entire city are selected. In second stage, from each selected polling booth area, 20 respondents are selected following the right hand rule. From Q4:2014-15 onwards, information relating to expenditure on essential and non-essential items, and households’ current financial situation are also being collected.

3. Survey Results

The survey results are analysed for each variable based on net response (difference between positive and negative perceptions). Net responses on selected variables are combined to create two summary indices viz., Current Situation Index and Future Expectations Index. In this article, current is used for current situation as compared with one year ago and future is used for expectations for one year ahead period.

3.1 Economic Conditions

Perceptions of respondents on current economic conditions after showing gradual improvement during the financial year (FY) 2014-15 (April to March), dipped sharply in Q2:2015-16. Net response on current economic conditions improved marginally thereafter. The proportion of respondents who reported improvement in current economic conditions increased gradually over the last four quarters and reached 40.2 per cent in Q1:2016-17 (Table 1).

Outlook of respondents on future economic condition broadly followed the same trend. The optimism regarding future economic conditions has consistently been higher than that pertaining to the current economic conditions (Chart 1).

3.2 Income

Respondents’ perceptions on current income, deteriorated since the second half of financial year 2014-15. However, some improvement was observed since Q4: 2015-16. Similar trend was observed in the outlook for future income. Proportion of respondents expecting higher income in next one year, increased from 47.1 per cent in Q2:2015-16 to 51.2 per cent in Q1:2016-17 (Table 2). Current income perceptions remain consistently lower as compared to those on future income and the gap between the two has widened over the quarters (Chart 2).

3.3 Spending

Consumers’ sentiment on spending has remained quite upbeat in the recent period. However, the net response for higher spending in the ‘current’ quarter declined from 72.8 per cent in Q2: 15-16 to 65.9 per cent in Q4:15-16, but resumed the upward trend to reach 73.9 per cent in Q1:2016-17. The sentiments on future spending remained almost similar to that on current spending since its sharp rise in Q4:2014-15 (Table 3 and Chart 3).

Categorisation of spending into essential and non-essential items since Q4:2014-15 revealed that the response on essential spending was broadly the same as that on overall spending (Table 4). More interestingly, sentiment on non-essential items has gradually improved during the last four quarters except in Q4:2015-16 (Table 5). It may be noted that higher spending could also result from increase in the price of consumer goods and services.

3.4 Perceptions on Price Levels and Inflation

Consumers’ perceptions on price level have remained negative throughout in line with rising prices in successive periods. However, proportion of respondents reporting rise in prices as compared to one-year ago decreased from above 90 per cent in Q2:2014-15 to 78.1 per cent during Q1:2016-17 (Table 6). Correspondingly, net response on current price level remained in the zone of pessimism but the extent was relatively lower since Q2: 2014-15 (Chart 4). Outlook for one-year ahead price level did not show any sustained improvement since Q3:2014-15; about 80 per cent of the respondents expected prices to rise year-on-year as revealed from the survey rounds between Q2:2015-16 and Q1:2016-17. The differences in sentiments on current and future price levels have narrowed down since Q1:2015-16.

The respondents who reported/expected increase in price levels were further asked about their assessment (outlook) on rate of price rise (i.e., inflation) in the current (one-year ahead) period as compared to one-year ago (the current quarter). It is observed that the vast majority of the respondents assessed that inflation in 2015-16 was higher than the corresponding period of the previous year (Table 7, Chart 5). Similarly, households do not expect inflation to come down significantly in different quarters of 2016-17 from the corresponding quarter of 2015-16.

3.5 Employment

Sentiment on employment deteriorated since Q3:2014-15 both for the current and the future period. (Table 8). The respondents were almost equally divided in their assessment (improved/unchanged/ worsened) on current employment situation in the survey rounds between Q2:2015-16 and Q1:2016-17 that resulted in net response close to zero (indicating status quo). They had more optimistic outlook regarding employment a year ahead, which also improved to some extent since Q3:2015-16 (Chart 6). However, the steep difference between current perception and future outlook observed in the first half of 2014-15 has come down subsequently.

3.6 Income vs. Spending and Inflation vs. Spending

About one-fourth of respondents reported increase in current spending and increase in current income across the four quarters. Further, proportion of respondents reporting increase in current spending but decrease in current income, declined over the last four quarters. Similarly, about 40-43 per cent respondents expected higher future spending as well as increase in future income. However, the share of those expecting higher future spending but lower future income, varied between 6.6 per cent and 7.7 per cent (Table 9).

To obtain further insights on spending perceptions, cross tabulation of responses on inflation and spending for the last four rounds are computed. The analyses of these responses revealed that about 74-79 per cent of the respondents who reported higher current spending also assessed higher current inflation. Similarly, 72-77 per cent of the respondents expected increase in future spending and increase in expected inflation (Table 10).

3.7 Consumer Confidence Index

3.7.1 Current Situation Index (CSI) and Future Expectations Index (FEI)

A summary measure of consumer confidence is calculated using net responses on economic conditions, income, spending, employment conditions and price levels (Methodology in Annex). The Current Situation Index (CSI) and Future Expectations Index (FEI) peaked in Q4:2014-15 in the post slowdown period and declined thereafter till Q2:2015-16. Since then, both the indices showed slight improvement. It is observed that between Q4:2014-15 and Q1:2016-17 the decline in CSI was contributed by deterioration in three factors viz., general economic condition, income and employment, while the price situation improved. The decline in FEI in the same period was contributed by all the parameters except spending (Chart 7).

3.7.2 Quality of Estimates

The confidence intervals for CSI and FEI have been estimated using bootstrap methodology. Based on 10,000 re-samples selected through simple random sampling with replacement (SRSWR), the 99 per cent bootstrap confidence intervals for CSI and FEI are given in Table 12. The narrow confidence intervals (varied from 1.8 to 2.0) indicate robustness of the estimates of CSI and FEI.

3.8 Summary

Sentiments on economic conditions improved in the second half of 2015-16 along with those on income and employment. On the other hand, in case of spending, the positive sentiment declined in the second half of 2015-16 but improved in Q1:2016-17. It is also observed that responses on higher spending were closely associated with those on higher inflation. As regards the price level, sentiment for the current period improved since second half of 2014-15. However, this improvement is not reflected in the case of future expectations. The level of optimism in future economic conditions, income and employment scenario, as in the past, were consistently higher than those relating to current situation. Combining the above, it was observed that both the current situation index and future expectation index after attaining a high in Q4:2014-15 declined during the first half of 2015-16 but showed signs of improvement thereafter.

Annex 1 – Data Tables

Annex 2: Methodology
Current Situation Index & Future Expectations Index

In standard opinion surveys, respondents generally have three reply options such as up/same/down; or above-normal/normal/ below-normal; or increase/ remain-same/decrease. Because of the difficulty of interpreting all three percentages, the survey results are normally converted into a single quantitative number. One of the most common way of doing this is to use ‘Net-Responses’ (also called ‘Balances’ or ‘Net Balances’). It is defined as the percentage of the respondents reporting a decrease (negative), subtracted from the percentage reporting an increase (positive). Net Responses can take values from –100 to +100. In this survey, Net Response is used to analyse the Consumer Confidence Survey results. To combine the consumer confidence perceptions on various factors, two indices are worked out. These are Current Situation Index for reflecting current situation as compared to one year ago and Future Expectations Index to reflect the expectations one year ahead. For calculating the index, the following formula has been used.

Overall Index = 100 + Average (Net Response of selected factors)

Where Net Response = Positive perceptions (%) – Negative perception (%)

The average net responses on the current perception on various factors, viz., economic conditions income, spending, price level and employment are used for the calculation of the Current Situation Index.

The average net responses on the future perceptions on various factors, viz., economic conditions, income, spending, price level and employment are used for the calculation of the Future Expectations Index.

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¹ From Q2:2012-13 to Q3:2014-15 rounds, Consumer confidence indices (CSI and FEI) were based on the net responses in respect of economic conditions, household circumstances, income, spending, employment conditions and price levels.

² Pre Q2:2012-13 rounds, the CSI was based on the net responses on economic conditions, household circumstances, income, spending and price levels; and FEI was based on the net responses on economic conditions, income, spending, employment conditions and price levels.

* Prepared in the Monitoring and Research Unit Department of Statistics and Information Management, Reserve Bank of India, New Delhi. The latest round (June 2016) of the survey data was released on August 09, 2016 along with Monetary Policy Statement on the RBI Website. The previous annual article on the subject was published in September 2015 issue of the RBI Bulletin.