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Rural/low income consumers feel low, high income consumers on top in 2017

LiveMint logoLiveMint 21-03-2017 Livemint

Consumers in India, Indonesia and China are among the more optimistic among emerging economies as they head further into 2017, according to a survey by Credit Suisse Research Institute.

The survey includes a focus article on India, authored by Neelkanth Mishra and Arnab Mitra.

They believe demonetisation will spur an increase in the share of branded goods in the consumption basket. This is likely to be especially visible in segments that were traditionally dominated by local brands where cash usage was more prevalent.

While that is a positive, the note also flags a difficult period for rural and low-income consumers, who don’t have the benefit of rising agricultural prices and income, as they did between 2005 and 2014.

Consumers in the lowest income groups have seen a sharper drop in consumer confidence, compared with the higher income groups, according to the survey.

In the lowest income bracket (income below Rs5,000/month), only 30% thought it was a good time for a major purchase, compared to 97% in 2015 (see chart). While all income segments have seen a drop in consumer confidence over 2016, it is noticeably less so in higher income groups.

Rising agricultural output has weakened the rate at which prices increase, and output in the past two years has risen by less than 5%.

Since half of the workforce is doing agricultural work and the rural construction market is also dull, wage growth has suffered.

Credit Suisse estimates that 75% of all construction work is rural. This has implications for consumption. Within staples, demand for products catering to more of lower income consumers has weakened. Discretionary products have done better, however. Car sales, for example, are doing better than two-wheeler sales, says the report, concluding that “the high income consumer remains key in 2017”.

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