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Rising inflation: Why Indian consumers are an unhappy lot

The Indian economy is gradually recovering after the COVID-19 pandemic brought the GDP growth rate to a standstill in 2020. But large sections of the country’s middle and low-income households are not happy. Be it rising fuel/gas prices or the high rate of unemployment, several factors are making citizens nervous. A possible hike in core inflation could worsen the economic issues plaguing the country’s poorer households.
 
According to Mumbai-based economic think tank CMIE, consumer sentiment is improving but is still a far cry from the levels seen before a strict nationwide lockdown was imposed in the country last year. CMIE said the index of consumer sentiments rose by two per cent in February 2021 after improving 1.7 per cent in January and 2.7 per cent in December 2020. 
 
Last month, it was just half of what it was a year ago when the lockdown began. “Consumer sentiments, therefore, a full year after the lockdown began, are half their level before the lockdown,” CMIE said in the report.
 
Growth? Really? 

Most growth indicators have turned positive since the third quarter of FY21, but economic recovery is unlikely to gather pace in the absence of strong consumer sentiment.
 
It is a crucial aspect of recovery as it is directly related to the demand for non-essentials commodities such as homes, cars, two-wheelers or refrigerators. 
 
Meanwhile, consumer sentiments also influence the willingness of households to make long-term investments. “Incomes may rise to recover lost earnings of the lockdown or asset prices may gallop past rationality, but if households do not feel good about their current and future economic well-being, they are less likely to spend even if they get wealthier,” the CMIE added.
 
Simply put, the consumer sentiment remains critically low despite a rise in average income levels from last year. High commodity prices have also impacted consumer sentiments in the country.
 
Rising fuel & gas prices

Middle and low-income households are also worried about the record high petrol, diesel and LPG prices. The high prices directly impact consumers' monthly savings and their ability to spend on non-essential commodities.
 
For instance, the cost of fuel (petrol and diesel) has increased a staggering 459 per cent in the past 7 years. Meanwhile, the cost of a 14.2-kilogram LPG cylinder has doubled in the same period.
 
A hike in petrol and diesel prices has directly impacted services and commodities, ranging from Zomato orders to daily groceries and other e-commerce services. Spending on public transport has also increased sharply due to record fuel prices.
 
All of these aspects have hit the common man’s pocket hard. The burden is much higher for households who have failed to secure a steady income source after the pandemic took away their livelihoods.
 
Crisis may deepen further

Consumer sentiments may further deteriorate if India faces a fuel crisis in the near term. Experts suspect that the government has very limited options to avoid a fuel crisis in India, given that there has been no cut in excise duty despite so many appeals.
 
The other area of concern is the sharp rise in cooking gas price, which has surged Rs 225 since December 2020. The absence of subsidies has made the situation worse for households, especially those in rural areas. Additionally, a further rise in fuel prices is expected which may not only burden those who own cars or run related businesses, but also bring down the automobile sector’s business.
 
Experts feel that a further strain on income levels due to higher inflation may not be healthy for economic recovery and it may hurt demand.

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