Explainer:What is Consumer Confidence Survey and what does it indicate?
Sai Krishna Muthyanolla
November 1, 2019
The RBI recently published the results of the
September 2019 round of the Consumer Confidence Survey. But, what is the survey
all about? What do the numbers indicate? Here is an explainer.
The Reserve Bank of India, on 04 October 2019, published the results of Consumer Confidence Survey  of the September 2019 round. The survey revealed that consumer confidence had declined further as compared to the previous surveys. As a part of this survey, perceptions of people on economy, employment and other general relatable economic concepts which are confronted by households on a daily basis are recorded. Under the same headings, what respondents are anticipating in the next one year is also recorded.
But, what is the Consumer Confidence Survey?How is it carried out? What is its significance? This story elucidates the purposeof this quarterly survey, methodology involved, and sample used in the study.The recent trend in consumers’ confidence is also examined in this story.
What is the Consumer
Confidence Survey? Why is it significant?
Consumer Confidence Survey is a quarterly survey conducted by the Reserve Bank of India  (RBI) to ascertain how confident people are about the economy. It indicates how people perceive the economy to be and how, according to them, it will be in the following year, giving insight into the country’s economic prospects. The survey also reflects consumption patterns of consumers based on how much they spend. It is apparent that greater confidence amidst the respondents implies consumers are willing to spend more money and this might lead to positive economic growth. In case the consumers exhibit lower confidence, it is an indicator that consumers are not willing to spend and hence may indicate a slowdown in general. This is because consumers are apprehensive and think twice before spending their hard-earned money. Similar surveys are conducted in other countries as well with slight variations.
How is the survey
carried out?
Earlier, only the six metropolitan cities inthe country were given prominence in the survey. Each of these six cities – Bangalore, Chennai, Hyderabad, Kolkata,Mumbai and New Delhi, was divided into three major areas which werefurther subdivided into three sub areas. From each sub area, 100 urbanhouseholds were selected randomly. Thus, we have 900 respondents from each citytotalling to 5400 respondents across the six cities. Those responses which aresuitable for further analysis are used to produce the results. Around 5000records are analysed every three months. The questionnaire used for the survey is also published by theRBI.
Seven more cities are
being covered in the survey since 2018
This survey has been regularly conducted by theRBI since June 2010. Since September 2017, the number of cities has been extendedto thirteen. The new additions to the list are Ahmedabad, Bhopal, Guwahati, Jaipur, Lucknow,Patna and Thiruvananthapuram. The number of households surveyed in each city isproportionate to the number of households recorded in Census 2011. However, thetotal sample size has been maintained at 5400. The number of records analysedstill revolves around 5000.
What are the factors
that are taken into consideration in the survey?
Through the survey, qualitative information iscaptured. The questions covered in the survey are related to the respondent’sopinion on the economic situation, price levels and inflation, employmentprospects, income and spending pattern. Since March 2015, questions pertaining to householdcircumstances such as assets, real estate, gold and motor vehicle were omittedfrom the schedule.
How is the assessment
carried out and How is the index calculated?
The assessment is carried out in two scales- perceptions andexpectations. Perception is how the current situation is as compared to theprevious year and expectation is what they are expecting it to be in the comingyear. Responses are recorded on a three-point scale, whether the financialcondition has/will improve, worsen or remain constant. Under each of thisscale, number of respondents who had similar opinion is expressed as thepercentage of total number respondents. Net responses, also termed as netbalances, is arrived at by subtracting the percentage of respondents whoreported a decrease from the percentage of respondents who reported anincrease. Thus, it can take any value in the range -100 to +100.
Current Situation Index (CSI) and FutureExpectation Index (FEI) are two indices which are calculated in order todetermine consumer confidence. These indices are calculated using the averageof net responses of parameters such as income, spending, economic situation,employment and price level for the current year and the following year,respectively, as the names suggest. The indices can take a value between 0 and200. A value above 100 for the indices suggests that people are optimistic.Since the removal of household circumstances parameter since 2015, theparameter has also been removed from the calculation of the indices.
What is the current
scenario?
The result of the latest round of survey conducted in September 2019 showsthat Consumer Confidence has declined as compared to July 2019. In fact, boththe Current Situation Index (CSI) and Future Expectation Index (FEI) havetouched a 5-year low.
Respondents feel that price levels haveincreased in the last one year and are also expecting it to rise in thefollowing year. In the case of overall economic situation and employment aswell, confidence of respondents, both in the present case scenario as well forfuture, have dropped. Same is the case with income. The sentiment on spendingon essential items has become stronger in contrast to spending on non-essentialitems, which has weakened, may be because of increasing price levels. Majorityof the respondents (74.1%) were of the opinion that their spending hasincreased in the last one year and a higher number (77%) felt that theirspending would only increase next year owing to increase in prices.
Does GDP growth rate
have an impact on confidence of consumers?
Since GDP is influenced by the nation’s demand,there is a tendency to assume that perception of a consumer will also berelated to it. There are multiple factors which influence GDP as well as thesentiments of consumers.
The trend in GDP growth rate and ConsumerConfidence Indices have been represented in graphs for ease of comparison. Databetween March 2016 and June 2019 has been taken.
During this period, the GDP growth rate touchedthe highest in the first quarter of Financial Year (FY) 2017. In the sameperiod, it can be observed that the Current Situation Index (CSI) was also thehighest.  Future Expectation Index (FEI)was the highest in fourth quarter of FY 2019 when the GDP growth was only 5.8%.The CSI was also substantially higher in the fourth quarter of FY 2019 comparedto the same period in FY 2018 despite lower GDP growth rate in FY 2019. Followingthe 5% GDP growth rate in first quarter of FY 2020, which is a 6-year low, the CSIin the second quarter of the same year dropped down to the least in six years.
Are the findings of the survey used for any
policy decisions?
The survey, just like other surveys, has itsown methodological shortcomings. For instance, the sample size is small for ahighly populous country like India. Further, only urban households are consideredin the sample from large cities despite more than 65% of population living inrural areas. However, the Monetary Policy Committee of RBI refers to the survey results toforecast growth and inflation in their half yearly reports.