Consumer sentiment hits 2008 lows

Consumer sentiment hits 2008 lows

New Delhi: Indians have begun to spend less and save more as job prospects look uncertain amid the economic downturn, says a relatively new monthly survey that has been tracking consumer behaviour across 13 cities.

Also See Less Spendings, More Savings (Graphic)

The survey, done by privately held Boston Analytics and modelled after well-regarded indices in the US, such as the University of Michigan’s Consumer Sentiment Index, and the Conference Board’s Consumer Confidence Index, hit an 11-month low in November. It debuted in January and is called the Boston Analytics Consumer Sentiment Index (BACSI). It surveys 7,500 consumers.

“The BACSI is India’s first, monthly statistically robust consumer sentiment index," notes Shirin Bagga of Boston Analytics. “It has been declining since June signalling consumers’ pessimism and fear about the current and expected state of the economy."

In November, the index stood at 81.8, declining 2.6% from its October reading.

Among the sub-indices, while the inflation and savings indices are up in November, employment and consumer spending indices are down.

A freeze on hiring by companies, news of emerging layoffs and uncertainty over job prospects have all impacted consumer sentiment, thus causing a dip in the consumer spending and employment indices.

Indeed, an unrelated survey, conducted for August-October by the Indian department of commerce in 121 export-related companies, estimated job losses of about 65,500. That study primarily covered employment-intensive sectors such as textiles, leather, engineering, gems and jewellery, handicraft, food and food processing, minerals and marine products.

“Prospect of job and income losses are much more a concern than ever, particularly in the financial services and information technology sector," said Abheek Barua, chief economist, HDFC Bank Ltd. “Even if inflation improves, I don’t think it would have an offsetting impact on the overall consumer sentiment. Prospects of unemployment in the organized sector are very real. However, there may be some improvement in the sentiment at the lower income category with fuel and certain other commodity prices coming down."

Meanwhile, a decline in commodity and oil prices has indeed offset inflationary concerns. India’s headline inflation rate has declined to 6.84% for the week ended 6 December after peaking at 12.91% in early August.

Increasing reluctance among consumers towards discretionary spending has also meant higher savings. “This is more of precautionary savings on the part of the consumer during such uncertain times," notes HDFC’s Barua.

During November, the Consumer Spending Index declined to 92.3 from its peak in July at 116.4. The declining consumer spending is also evident from the factory output data released by the Central Statistical Organisation. During October, the last month for which data is available, production of consumer goods contracted by 2.3% while output of consumer durables dipped by 3%.

Meanwhile, according to sales data released by Society of Indian Automobile Manufacturers, November car sales dropped 19% to 83,059 units over year-ago period. That is the biggest fall in the last five years and second only to a 31% fall in February 2003.

Despite much handwringing and anecdotal evidence to the contrary, the real estate sector seems to be holding firm despite a decline in overall consumer sentiment, with the Real Estate Sentiment Index increasing in November to 98 over its previous month. However, the index still stands below the benchmark value of 100.

Earlier this month, the Indian government announced a Rs32,000 crore fiscal stimulus package and a 4 percentage point cut in excise duty to boost consumer demand in the Indian economy. Analysts, however, say that such measures aren’t likely to immediately revive consumer sentiment.

“This is beginning of a slowdown," predicts Barua. “The consumer sentiment is unlikely to improve in the short run."