Where Is The Consumer Confidence?

While the economy’s slump can be explained through losses in income and employment, consumer confidence is something that would pose a greater challenge to recovery

- Tulsi Jayakumar

ONE of the unintended consequences of the pandemic has been an all round knowledge of macroeconomic terms, which, in normal pre-Covid times, would have been relegated to textbooks. Ask your average Raj or Simran why the economy is going through a slowdown and the answer would be one that would make Keynes proud. “It is because of lack of demand,” they would state confidently.

Such lack of demand has indeed cost the economy dearly. The pandemic has squeezed private consumption, the mainstay of India’s aggregate demand, particularly hard. During fiscal 2020-2021, private consumption fell sharply by 9%, which has been the first in the past four decades.

The lack of demand does have to do with fewer jobs and higher unemployment, cuts in wages and salaries, shutdowns especially of micro, small and medium enterprises (MSMEs) amidst the pandemic, and the stringent lockdowns and social distancing norms associated with the pandemic. Discretionary consumption—essentially what people spend on travel, hotels and restaurants, recreation, etc.—that accounts for 20% of total private consumption has slumped much more than that on essentials. Reverse migration of workers, especially during the first wave but seen in the second one as well, also contributed to the reduction in disposable incomes of a large proportion of the population, reducing consumption.

While the economy’s slump can be reasonably explained through such tangible losses in income and employment, there is another part that is likely to pose a far greater challenge to recovery. And that pertains to the reduction in both business and consumer confidence, but especially the latter.