Spending

Russian-Ukrainian crisis: nearly 42% of households would reduce their discretionary spending, according to a survey

According to the survey, only 22% of households surveyed said they could cope with the impact of short-term price increases, 9% said they could tolerate increases of up to 20%, 7% said they could withstand up to 10% and 16% hikes can handle up to 5% hikes

By Rajesh Kurup

The Russian invasion of Ukraine would have wide ramifications for India, starting with a reduction in discretionary spending, if soaring crude oil prices drive fuel prices even higher.

Nearly 42% of households would cut discretionary spending, of which 24% have already cut it to some extent as they cannot absorb the impact of a further rise in petrol and diesel prices. Other reasons for the reduction include the impact of Covid-19, future pandemic-related uncertainty and projected inflation due to higher oil prices, according to a survey by LocalCircles, a platform for community based social media.

The platform enables citizens and small businesses to escalate issues for policy interventions and enforcement, and government to develop policies centered on citizens and small businesses.

“The government will soon have the choice of either absorbing the impact of rising crude oil prices by lowering duties and taxes and maintaining the status quo, or raising gasoline and diesel prices causing budget deficits and hurt discretionary spending and economic growth If fuel prices increase by Rs 10 per litre, this will result in an overall increase in prices across all sectors and impact consumer discretionary spending middle and upper class,” said Sachin Taparia, founder of LocalCircles.

According to the survey, only 22% of households surveyed said they could cope with the impact of short-term price increases, 9% said they could tolerate increases of up to 20%, 7% said they could withstand hikes of up to 10% and 16% can handle up to 5% hikes. The survey covered 27,000 people from 361 districts.

“A sharp rise in crude prices will hurt many sectors such as cement and construction, leading to higher petroleum coke prices, while transportation and edible oil companies must, among other things, have a impact on margins FMCG companies would also be affected as packaging and transportation costs are expected to increase, while a rise in the price of edible oil due to a drop in supply from the Black Sea region would affect them as well.There will be a cascading effect on many other sectors,” said Barnik Chitran Maitra, Managing Partner and CEO of Arthur D Little (India and South Asia).

Benefits to dive

Nearly one in two households surveyed think their income will drop in 2022 due to the pandemic, geopolitical tensions or cuts in wages or businesses, among other things. About 6% expect their income to drop by 50% or more, and 6% expect their income to drop by 25-50%.

On the other hand, around 11% of households expect their income to increase in 2022, while 6% expect their income to increase by 25% or more and 6% expect an increase of 0-25%, while 2% were unsure.

The price of petrol hovered around Rs 100-110 per liter in most cities and that of diesel was around Rs 90-100 for the whole of 2021 – both registering a record high. The only relief was when the Center reduced excise duties, while state governments reduced value added taxes.

Currently, gasoline sells for between Rs 100 and Rs 105 and diesel between Rs 90 and 95 per litre.

The 2022-2023 budget estimated an average of $75 per barrel. Now petrol and diesel prices are frozen in India due to elections in five states, but analysts estimate prices will rise by at least 10 rupees per liter after the election is over. The Ukrainian crisis should also lead to an increase in subsidies on LPG and kerosene, if the government absorbs the rise in prices.