While spending increased in India, income levels did not keep up: RBI survey

An RBI survey shows that in the second half of 2024, more people were pessimistic about the Indian economy. This was not the case in the first half of the year

In November, 88.6% respondents in urban households said that their spending on essential items had increased from a year ago, the highest such share in the last nine years. In the same month, 30% of respondents said that their spending on non-essential items too had increased from a year ago, the highest in the last five years and six months.

These responses are a consequence of the consistent rise in prices. Close to 95% of urban respondents continued to feel in November this year that prices of commodities have increased from a year ago. The last time that less than 90% of respondents felt the same was in January 2021 — during the COVID-19 pandemic, when demand was low.

While a higher share of respondents felt that the prices and as a consequence, their expenditure had increased, less than 25% of them said that their income levels had increased compared to a year ago. This is the lowest such share in over a year and seven months.

So, more and more urban consumers are saying their spending levels are increasing, while fewer and fewer of them are reporting an increase in their income levels. This means that the increase in expenditure is fuelled only by the rise in prices and not because their purchasing power has improved.

Due to this, in the second half of 2024, a higher share of respondents were pessimistic about the Indian economy than those who were optimistic. This was not the case during many months of the first half of the year.

These conclusions are based on the Reserve Bank of India’s bi-monthly Consumer Confidence Survey, conducted across 19 major cities in November.

Chart 1 shows the share of respondents who said that the prices of commodities had increased/decreased/stayed the same in November compared to a year ago. The share of respondents who reported an increase in prices in November this year (94.3%) was the sixth highest in over a decade.