According to Credit Suisse, Indian consumers are more worried and more people expect lower salary increases and personal finances to worsen, making it a bad time for large-ticket purchases

Just when the Reserve Bank of India (RBI) cut interest rate in order to boost consumer sentiment and revive spending, it would seem that consumer optimism is going in the same direction—down, says Credit Suisse, based on a consumer survey. This shows the clear disconnect between policy makers and the actual realities on ground. Further more, confidence in government and consumers’ expectations of inflation is declining already.

According to the report, Arnab Mitra, vice president Credit Suisse Equity Research, consumers are clearly more worried and more people expect lower salary increases and personal finances to worsen, making it a bad time for large-ticket purchases this time around as compared to last year. The survey showed that only 30% respondents saw marginal salary hikes in 2012. On the other hand, income of 20% declined in 2012. Consequently, fewer people felt this was a good time to make major purchase (the numbers fell from 73% in 2010 to 66% in 2011 and 59% in 2012.

Consumers remained extremely risk-averse and keenness to invest in stock markets remained low with just 4% respondents trading stock markets. Preference towards gold and insurance was increasing while bank account savings remained steady, it said.

With falling optimism and uncertainty about future, domestic consumers are now saving more with the percentage of income saved increasing from 28 in 2011 to 32 in 2012, while cutting down on spending.

The most notable changes in the overall spending trend are an increase in food spending and reductions in both education and housing spending, Mitra said.

The survey points out that although mobile penetration went up, only a few people bought smart phones and more now want to buy an entry-level car.

Survey said spending patterns show a significant divergence across rural and urban markets. The downward trend in consumer optimism is likely to continue this year due to adverse macro conditions, high inflation and slower growth in the domestic economy, finds Credit Suisse. "The decline in consumer optimism observed in 2011 further intensified last year, owing to continued adverse macro conditions, high inflation and slower growth in the domestic economy. Going by the initial trends, it is unlikely to witness any major shift this year as well," Credit Suisse India Consumer Survey 2013 said.

During testing times, consumers will always be on the backfoot, unless there is a trend that the economy is indeed reviving. However, nothing of that sort has happened yet. Both global and the domestic economy continues to be uncertain. The high inflation, even though it has been trending down, is still a cause for worry to most consumers as it has not yet translated to lower spending, at least not yet. This prompted many consumers to hold off purchases. "There are instances of consumers delaying buying decisions as they cut down on lavish spending because of the economic uncertainty. While two years ago, Indians were confident about their personal finances, past two years have seen a significant deterioration with the survey respondents expecting their personal finances to get worse, rising from 3% in 2010 to 11% in 2012," the

survey said.

This trend is reflected in the commentary of many companies who operate in discretionary consumption categories and are indicating a slowdown in growth rates, it said. Usually, an upbeat economy or at least economic revival would imply higher salaries, higher optimism, higher consumer spend and so forth. But the most important part is when consumers earn more, which clearly isn’t happening at the moment, despite optimism from investment managers and policy makers that economy is reviving.