Business and consumer confidence blurred, economic recovery blurred

- Inflationary conditions should be avoided amid sluggish demand

Co-Rona has eroded the confidence of two important parts of the country's economy, the trade industry and consumers. Consumer confidence fell to an all-time low in May. Consumers are expecting a decline in the general economic situation and employment picture, according to a May Reserve Bank survey. The RBI's Menu Current Situation Index (CSI), which stood at 8.10 in March, fell to 8.30 in May. The Future Expectations Index, which stood at 103.50 in March, fell to 8.30 in May, indicating that consumers are pessimistic for the next one year.

The survey conducted by the Reserve Bank every two months gives an estimate of the general economic condition, employment picture, overall price situation and consumer income and expenditure level from the participants. The future expectations index is negative for the second time after Corona. Corona's second wave has soured the minds of consumers as the country's economic situation deteriorates. An estimated 1.5 million people lost their jobs in May.

On the other hand, the business confidence of the country's corporates has also gone down, according to a survey by the Federation of Indian Chambers of Commerce and Industry (FICCI). Trade confidence has plummeted since the sharp rise in corona infections in April and May.

The overall business confidence index, which stood at 7.50 in the previous round, has come down sharply to 31.50 in the last round. Demand is expected to remain weak for a long time to come as consumer spending declines and savings are washed away last year. As the current wave of corona affects a large number of people in the country, measures to improve demand remain important for the economy. Companies have also expressed a disappointing tone on the export front. Only 5 per cent of those surveyed indicated an increase in exports.

Both these surveys on consumer and producer confidence indicate that optimism about the Indian economy is declining from its height.

Given the declining confidence level, it will be difficult for India to drive higher economic growth to the post-Corona medium term. In other words, India and its policy makers need to be prepared for the knocking recession. The proposed recession is looming at a time when the economic situation in the country is fluid due to the Corona. The second wave of corona has reached the rural areas and widespread discontent has spread, especially as measures to address the grievances of farmers will further destabilize the financial position of the Center and the states. Rising petrol-diesel prices are raising concerns among the government. If the country's financial position is to be sustained, the government will have to refrain from taking steps that would increase the fiscal deficit.

At its last meeting, the Reserve Bank avoided changing the repo rate. Measures to curb rising inflationary pressures remain necessary. Higher oil and commodity prices have weighed on domestic inflation.

In addition to the growing money deficit, raising money will continue to be a challenge for the country amid the evolving global economic environment. The picture of investment in the country is looking very weak in the Corona era. Private sector companies are reluctant to add capacity, which has an impact on investment. In the last financial year 2020-21, the amount of proposed investments behind new projects in the country is the lowest since the financial year 2007-08. Letters of intent to invest provide an indication of the state of the country's economy.

The projects announced in the financial year 2007-08 were estimated to have a total investment of Rs 2.7 trillion, while the projects announced in the last financial year are estimated to have an investment of Rs 2.18 trillion. According to CMIE figures, projects worth Rs 12.5 trillion were announced in 2012-13.

The lower amount of investments may mean more borrowing by corporates in the last financial year than is needed for refinancing and working capital. It will be interesting to see how far the newly announced projects can go as the number of stalled projects and the cost behind them are also increasing. Investments projects are a great way to increase employment in the country. As long as there is no momentum in investments behind projects, people will not have the money to spend which will have an impact on consumer demand.

After the recession of 2008, India is once again caught between a slow recovery in domestic demand and a deteriorating global situation. In such a scenario, it is imperative for the government to take urgent steps to boost business and consumer confidence in the country.