Measuring financial resilience with consumer sentiment data from India

Abstract

PurposeCovid-19 sparked new interest in consumer financial resilience (CFR) amongst regulatory authorities, financial institutions, policymakers and the academia. No financial and health crisis has been worse than Covid-19, erasing the growth momentum of nations at all development stages. This study measures consumers' current financial resilience and future expectations within India's emerging market and its likely response to policy measures.Design/methodology/approachCFR is investigated using individual household data on economic state, employment, income and savings from the Reserve Bank of India's consumer confidence survey. The empirical approach is based on the temporal time-series data with mixed frequency regression. Consumers' current and future expectation indices appear as the regressand, whereas credit-deposit ratio, credit outstanding, number of bank accounts and digital transactions act as main regressors.FindingsThe response of consumers' current situation is 3.50 times higher than that of their future expectations. This implies that a rise in the credit-deposit ratio and credit line positively affects CFR. In contrast, a higher number of bank accounts, a proxy for financial inclusion, adversely affect consumer's well-being possibly owing to the government's failure to provide financial support through banking networks. Digital payments (value) positively affect consumers' current situation and future expectations.Practical implicationsThe results of this study inform policy formulation for enhancing financial resilience. Consumer sentiment index acts as a proxy for CFR.Originality/valueFinancial resilience is a concern for policymakers. This study is one of the first studies linking CFR with financial inclusion, credit creation and digital financial capability.