No-one’s waiting for ‘achche din’ now

A Reserve Bank of India (RBI) survey that found that about 90% of urban households in the country expected inflation to worsen in the next one year presents a very pessimistic picture of the people’s view of the economy. For most people, the economy means prices, and a rise in prices means deterioration of the economy. They feel and experience the prices directly in the market place, and so inflation percentages, calculated and projected by the RBI or others, do not appeal to them. The dipping of the retail inflation to a low 2.33% in November would therefore not carry much conviction with people. The survey was conducted among households in 18 cities, including Bengaluru, and when an overwhelming majority of them fear that the prices of articles of common consumption like food, fuel, housing and services will go up significantly in 2019, it is a negative vote on the economy.

Retail inflation declined because of factors like a fall in fuel prices and disinflation in food prices. These are likely to be transient factors. The monsoon was insufficient in many parts of the country. The sowing of rabi crops has been affected and production may suffer. This can give a push to food prices without, as is often the case, benefitting the farmers. Oil prices, which were rising for some months, have bottomed out and they can only go up now, especially with plans for a production cut by oil-producing countries. When oil prices rise and the rupee falls, the overall price situation and the inflation rate are bound to get worse. In any case, the inflation rate does not correctly represent the impact of prices on the budgets and spending habits of a large number of households. This is because most households have a lower allocation for food and allot a higher share of the budget to housing, transport, fuel, services, etc. While the food prices are low and depress the consumer price-based inflation, the actual experience of inflation of households is different. That is why inflation expectations of the households surveyed remain high. People fear, however, that even food prices will go up.

Household perceptions affect consumer confidence and spending and saving in the economy. This should be seen in conjunction with other surveys that project a lower growth for the economy in the second half of the financial year. What the surveys show is that the people do not share the government’s view of a hunky-dory economy and do not accept its claims about misadventures like demonetisation. People aren’t even waiting for the much-promised ‘achche din’ anymore. These perceptions are likely to have political implications that cannot be ignored.