{"id":125464,"date":"2022-02-18T04:41:22","date_gmt":"2022-02-18T04:41:22","guid":{"rendered":"https:\/\/fin2me.com\/?p=125464"},"modified":"2022-02-18T04:41:22","modified_gmt":"2022-02-18T04:41:22","slug":"households-happier-with-budget-than-markets","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/households-happier-with-budget-than-markets\/","title":{"rendered":"Households Happier With Budget Than Markets"},"content":{"rendered":"

Evidently, households see a brighter future after the Budget, reveals Mahesh Vyas.<\/strong><\/p>\n

The Indian stock markets welcomed the Union Budget with the major indices pencilling higher than normal returns.<\/p>\n

The most comprehensive index — the CMIE Overall Share Price Index (COSPI) that houses over three thousand actively traded scrips — recorded a 1.2 per cent gain on the day of the Budget and another 1.2 per cent on the following day.<\/p>\n

It shed part of these gains on the following two days.<\/p>\n

Nevertheless, the week of the Union Budget yielded a gain of 2.6 per cent, which is much better than what a week usually generates on the Indian bourses.<\/p>\n

Average weekly returns were 0.85 per cent and the median was 1.22 per cent since April 2020.<\/p>\n

A 2.6 per cent return is in the top 25th percentile of the weekly returns on equities. The markets evidently were happy with the Budget.<\/p>\n

Households welcomed the Union Budget as well.<\/p>\n

While equity markets react to Budget announcements in real time, households we believe, take a little longer to digest it.<\/p>\n

Households are not as cued in as financial markets are.<\/p>\n

Transmission, and we can assume translation as well, takes time.<\/p>\n

Now is therefore a good time span to use to measure household reactions to the budget. And, consumer sentiment is a useful metric.<\/p>\n

CMIE’s Index of Consumer Sentiments (ICS) provides weekly estimates of household sentiments based on a sample of over 10,000 households from an area that covers 99 per cent of India’s population across rural and urban India.<\/p>\n

The ICS shot up by 6.4 per cent in the week ended February 6. The union budget was presented on February 1.<\/p>\n

This is the best change in sentiments recorded since 2016 when the ICS series begins.<\/p>\n

During the period since April 2020, the average weekly change in the ICS was -0.18 per cent; the median was -0.16 per cent and the value at the 75 percentile of weekly changes was 3.5 per cent.<\/p>\n

A 6.4 per cent weekly change is at the 87th percentile in the distribution of weekly changes in the ICS since the pandemic hit India in April 2020.<\/p>\n

Households are evidently happier with the Budget than the markets are.<\/p>\n

The 2022 Budget was markedly different from other Budgets.<\/p>\n

CMIE has measured consumer sentiments since January 2016.<\/p>\n

It therefore has measured the sentiments following the Union Budget on seven occasions.<\/p>\n

On four of seven such occasions, households gave the Union Budget a thumbs-down.<\/p>\n

The index fell within the first week by between 2 and 5.6 per cent on these occasions.<\/p>\n

In 2019 (Interim Budget) and 2020, households responded with a 2.3 per cent and 2.2 per cent increase in about a week from the budget.<\/p>\n

The Interim Budget was populist. Yet, the ICS increase after the 2022 Budget was higher than in any other year by a huge margin.<\/p>\n

The Budget provides a forward-looking signal. It is therefore expected to influence expectations rather than current economic conditions.<\/p>\n

Besides, there was nothing in the Budget that was in the nature of any instant gratification for households.<\/p>\n

Households understand this. As a result, almost all the movement in the ICS after the Budget was in the Index of Consumer Expectations (ICE) and not the Index of Current Economic Conditions (ICC).<\/p>\n

The ICC increased by only 1.5 per cent in the week ended February 6 but the ICE vaulted by 9.6 per cent.<\/p>\n

Evidently, households see a brighter future after the Budget.<\/p>\n

The 9.6 per cent increase in the ICE can be appreciated by the fact that since April 2020, the average weekly change in the ICE was -0.1 per cent and the median change was 1 per cent.<\/p>\n

A 9.6 per cent increase is at the 97th percentile in the distribution of weekly ICEs since April 2020.<\/p>\n

This virtual ovation for the Budget from households was highly discriminating.<\/p>\n

Not everyone seems to be happy with the Budget.<\/p>\n

Urban India gave it a serious thumbs-down while rural India gave a correspondingly thundering thumbs-up.<\/p>\n

The ICS for urban India declined by 4.4 per cent in the week ended February 6, 2022 while that for rural India rocketed by 12.2 per cent.<\/p>\n

By historical trends both these movements are extraordinary.<\/p>\n

It is not normal for the ICS of the two regions to vary so much.<\/p>\n

And, it is also extraordinary that the two have moved extraordinarily in two different directions during the same week.<\/p>\n

It is possible that the higher unemployment and higher inflation in urban India required some succour from the Budget.<\/p>\n

But, the Budget failed to meet such expectations.<\/p>\n

The Budget’s message seems to be infrastructural development.<\/p>\n

But this does not generate the kind of jobs that young urban India aspires for.<\/p>\n

Infrastructure development could create jobs in construction which are largely contractual and temporary.<\/p>\n

These are not the jobs educated urbanites look for. Besides, generating jobs was not the thrust of the finance minister’s message in her speech.<\/p>\n

Rural India’s enthusiasm is unclear. Allocations for MGNREGA for next year are budgeted lower than the monies to be spent in the current year.<\/p>\n

Subsidies for fertilisers have been slashed.<\/p>\n

Allocation for PMKISAN that gives direct cash transfers is stagnant.<\/p>\n

Allocation for PM Fasal Bima Yojana is slashed.<\/p>\n

And, the cut in food subsidy could mean that the government could procure less from farmers.<\/p>\n

Nevertheless, rural India, which is more than just farmers, is apparently elated by the Budget. We just don’t know why.<\/p>\n

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