The Big Squeeze: With rising prices of fuel and essentials amidst the COVID-19 impact, 79% consumers believe their household earnings for FY21-22 will decline while 49% expect decline in savings

June 16, 2021, New Delhi: At the time the COVID-19 outbreak has brought levels of financial distress in India’s economy vis-à-vis citizens’ income, reports are rife with sky-rocketing prices for household essentials, and consumers are already experiencing the pinch. Households in most parts of the country are paying more for the same list of essential and grocery items when compared to previous months of 2021 and 2020. The prices of household essentials such as edible oil, soap, shampoo have increased by 4-20%. The prices of vegetables have also soared due to insufficient supply coupled with high demand and rising prices of petrol and diesel. India reported retail inflation at 6.3% in May and June. India’s largest milk brands, Mother Dairy and Amul have increased prices by INR 2 per litre this month. Similarly, food inflation is currently at 5.58%, pulses at 10.01%, fruits at 11.82%, transport at 11.56%, fuel & light at 12.68%, and oil & fat inflation is at 34.78%. This is happening at a time when the price of petrol and diesel has crossed the INR 100-mark in most states of India. In April-May when several states observed lockdown-like restrictions, the fuel price increased 15 times. Delhi has petrol priced over INR 101 while in Mumbai its price has crossed INR 107. States like Rajasthan now have petrol and diesel priced at INR 112 and INR 102, respectively. The price of petrol has crossed INR 100 per litre in at least 16 states and Union Territories. When the prices of petrol and diesel rise, it has an adverse impact on how citizens commute, how much essentials and other goods cost, and how people draw up their personal finances and household budgets.

India observed the countrywide lockdown from the end of March till September 2020. The economy had just started to recover post-unlocking but then followed the 2nd wave of COVID-19, related lockdowns and curfews, which again made a significant impact on the households’ economy. Over the past 15 months or since the beginning of the outbreak, households’ income has been significantly impacted after earning members of the family lost jobs, faced salary cuts and delays vis-à-vis altered their purchase pattern, consumption of products and services, change in their savings plan, etc. Per the Reserve Bank of India (RBI) in its latest survey said that India’s consumer confidence fell to an all-time low in May 2021, driven by a sharp fall in expectations on the general economic situation, employment scenario and household income over a 1-year horizon. It further said that households’ spending declined, with essential spending showing signs of moderation, while non-essential spending continues to contract. This has forced many Indians to take loans. According to a Credit Information Company (CIC) report, nearly half of the country's working population of 40 crores is in debt, with at least one loan or credit card. Per latest RBI data, loans against gold have jumped a whopping 82% since March 2020.

After receiving thousands of posts and comments on the subject of earnings, savings, rising fuel prices and cost of essentials, LocalCircles conducted its Mood of the Consumer survey to understand how much higher price people are paying to purchase vegetables in comparison to December 2020 to February 2021, or before the 2nd wave of COVID hit India. It also tried to understand the change in people’s monthly household grocery and essentials costs in the last 3 months. The survey then tries to seek out Indian households’ preparedness in their financial planning, including their savings and earnings outlook for the year 2021-22. It compares the findings with similar surveys conducted in April 2020 and August 2020 to understand how the mood of the consumer has changed over the period. Given the steep rise in fuel price, the survey also sought to understand what should be done by the Government, both Centre and State, to provide immediate relief to consumers. The survey received more than 70,500 responses from citizens across 382 districts of India. 63% respondents were men while 37% respondents were women. 43% respondents were from tier 1, 29% from tier 2 and 28% respondents were from tier 3, 4 and rural districts.

65% households say they have paid 25-100% higher prices this year for vegetables in comparison to December – February 2021

In many vegetable mandis across states hit by the lockdown and restrictions till the end of May, the prices of vegetables saw a rise in prices followed by the impact of the price of petrol and diesel. The prices of food articles have risen by nearly 5% in April, while primary commodities saw a rise of 10.16%, and price of manufactured products went up by 9.01%. To better understand from consumers, the first question in the survey asked consumers how much higher price their household paid on an average for vegetables in comparison to December to February 2021. In response, 5% of households said they have paid “higher by 100%,” 27% said “higher than 50-100%” while 33% said “higher by 25-50%.” 21% said “higher by 0-25%.” There were only 9% of households who paid same as last year, and 2% paid less, while 3% couldn’t say. On an aggregate basis, 65% of households say they have paid 25-100% higher prices this year for vegetables in comparison to the period before the 2nd wave of Covid. This question in the survey received 16,165 responses.

79% households say on monthly essentials/grocery costs they are getting less value for same or more money spent in comparison to December-February 2021

Experts, citing Government data, say that the trade of perishable vegetables in the retail market goes up at different rates across states due to several factors from disrupted supplies, unchecked regulation on its trade, etc. A report by Kotak Institutional Securities in June suggests that price of household essentials such as soap, shampoo has increased by 4-20%, edible oil by 12-42%, packaged tea by 4-8%, coffee by 2-7%, to name a few. Meanwhile, few states have started taking action against vegetable hoarders, per se, to ensure affordable prices in the market but with limited success.

Another question in the survey asked consumers about the change in their monthly household grocery and essentials costs in the last 3 months. In response, 10% said they are spending same and getting less, while 16% said they are getting the same value on the same amount. On the other hand, 46% of consumers are spending more amount but getting less value, and 23% are spending more amount and getting the same value. Breaking down the poll, 2% are spending less amount and getting more value. 3% did not have an opinion. On an aggregate basis, 79% of households are getting less value for same or more money spent on monthly essentials or grocery costs as compared to its cost in December to February 2021. This question in the survey received 8,510 responses.

Aimed to understand consumers’ spending behaviour during the period from April 2021 to March 2022, the survey has tried to understand Indian households’ preparedness in their financial planning, including their savings and earning patterns, along with discretionary purchases they are planning during the period. It then compares the findings with the similar surveys conducted in April 2020 and August 2020 to understand how the mood of the consumer has changed over the period.

47% consumers now expect COVID uncertainty to last 6-12 months in their household budget planning

One of the lessons we can draw from 15 months into the Coronavirus-induced pandemic is to be prepared for the unexpected. A lot of what happens in the coming months will depend on the spread of COVID-19, and how speedily the vaccination reaches consumers of all age groups. India’s daily caseload hit an all-time high of 414,188 on May 7th, 2021. While cases have now declined to almost 40,000 a day, they are not going down further. The following question in the survey sought to understand the perception of consumers on how long do they expect their households’ finances to last from April 2021 to March 2022. In response, 3% said “up to 1 month”, 11% said “1 to 3 months”, 30% said “3–6 months”, and 47% said “6–12 months”. 9% did not have an opinion. The findings of the poll indicate that 47% of consumers now expect COVID uncertainty to last 6-12 months in their household budget planning. This question in the survey received 9,084 responses.

49% consumers believe their average household savings will reduce in 2021-22 in comparison to 2019-20

The survey also tried to know how consumers estimate COVID to impact their household savings in the period from April 2021 to March 2022. In response, 19% of consumers said their household savings will “likely stay the same”. Breaking down the poll, 11% of consumers said their savings will “likely increase by 25% or more”, 8% said, “likely to increase by 0-25%”, and another 8% said will “likely increase but can’t say how much”. There were also 19% of consumers who said their savings will “likely decrease by 0-25%”, 17% said, “likely to decrease by over 25%”, and 13% said “likely decrease but can’t say how much”. 5% of consumers did not have an opinion. The findings of the survey indicate that 49% of consumers believe their average household savings will reduce in 2021-22 in comparison to 2019-20. This question in the poll received 14,059 responses.

With COVID 2nd wave, many more likely to dip into savings to cover their household expenses with 49% now expecting their savings to decline in FY 21-22

A similar question LocalCircles asked consumers in May 2020 survey, 46% of consumers were expecting their savings to decline. This percentage has increased marginally to 49% of consumers now expecting their savings to decline in the Financial Year 2021-22 given the intensity of the 2nd wave of COVID-19. For instance, the percentage of consumers who said their income “will likely decrease by over 25%” has risen from 13% in the May 2020 survey to 17% in the latest survey. Similarly, consumers saying their income “will likely decrease by 0-25%” have risen from 18% to 19%.

79% consumers believe their household earnings will reduce in 2021-22 in comparison to 2019-20

With another 2 months of lockdown and restrictions in April and May across the country due to the outbreak of the 2nd wave of COVID-19, the following question in the survey sought to understand the impact it made on consumers’ household income in the next 12 months (April 21 to March 22) in comparison to pre-COVID (April 19-March 20). In response, only 17% of consumers said the pandemic won’t have any impact on their household income or earnings in the next 12 months. Breaking down the poll, only 3% of consumers believe their income will increase by 0-25%, and just 1% said it will increase but can’t say by how much. There were also 32% of consumers who said their income will reduce by 25% or more, 12% said it will reduce by 10-25%, 10% said will reduce by 0-10%, while 25% said will reduce but can’t say by how much right now. On an aggregate basis, 79% of consumers believe their household earnings or income will reduce in 2021-22 in comparison to 2019-20. This question in the poll received 15,489 votes.

Post COVID 2nd wave the optimism that kicked in August 2020 fades away and 79% households now see earnings declining in FY21-22

Alternatively, the survey looked into the findings to the similar question asked to consumers in April 2020, August 2020 and June 2021 surveys. In April 2020 and August 2020 surveys, the percentage of consumers who believed their household income will be impacted were 87% and 73%, respectively. In the June 2021 survey, 79% of the household now see their earnings declining in FY21-22. This means that the optimism that kicked in August 2020 fades away.

76% consumers want Government to reduce excise duty on petrol and diesel; highest number of consumers wants it reduced by 20%

Along with the rise in the price of daily essentials and dip in households’ income, fuel prices have been reaching new levels. The price of petrol has crossed INR 100 per litre in at least 16 states and Union Territories. While the base price, per various studies, comprises 36% of the retail petrol price, states’ value-added tax (VAT) makes up 23% of the final fuel price. Other factors in the retail price of petrol and diesel include excise duty and road and infrastructure levied by Central Government, agriculture infrastructure cess, BS-IV premium, marketing cost and margins, dealers’ commission, etc. The final question in the survey asked consumers what the Government should do to provide immediate relief to consumers on petrol and diesel prices. In response, 46% want the Government to cut excise duty by 20% on petrol and diesel. 18% want excise duty cut by flat INR 10 on both, and 12% want it cut by flat INR 15 on these fuels. There were only 12% of consumers who think that the Government should not take any action, and another 12% did not have an opinion. On an aggregate basis, 76% of consumers want the Government to reduce excise duty on petrol and diesel. Of whom, the majority want it to be reduced by 20%. This question in the survey received 7,255 responses.

In summary, the findings of the survey indicate that 47% of consumers expect COVID uncertainty to last 6-12 months in their household budget planning, though much of this effect in coming months will depend upon how the Government of India plans to contain the spread of the virus vis-à-vis mitigate vaccine inoculation challenges across the country. 49% of consumers surveyed expect their household savings to decline in FY 21-22, while 79% believe their household earning will reduce in the current financial year.

India’s economy started to recover from the first COVID wave lockdowns and restrictions from September 2020 and many are yet to fully recover from the giant fall in their personal income facing job loss, salary cuts and delays. Amidst the deadlier 2nd wave of Covid, the rise in prices of household necessities has only added a burden to household woes, especially for low and middle-income earning households. The survey is part of a continuous effort by LocalCircles to bring authorities’ attention to the issue so actions can be taken to improve the on-ground situation. The common citizen continues to feel the pinch of high petrol and diesel prices. In May 2020, the Central Government had increased fuel prices in the form of excise duty and road infrastructure cess in a bid to shore up falling revenues to compensate for the fall in demand due to the outbreak. Given that the COVID-related excise duty has been increased several times since then, the Central Government must consider reversing this partially or fully. This is evident as indicated by the survey, where 76% of Indian households want the Government to reduce excise duty on petrol and diesel as immediate relief. Of whom, the majority want it to be reduced by 20%.

Survey Demographics

70,500 responses were received from citizens across 382 districts of India. 63% respondents were men while 37% respondents were women. 43% respondents were from tier 1, 29% from tier 2 and 28% respondents were from tier 3, 4 and rural districts. The survey was conducted via LocalCircles platform and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.