Indian consumers are pessimistic about the economy
Moneylife Digital Team 20 April 2012

A newly launched index called Consumer Confidence Index (CCI) has shown nationwide pessimism about the future of the economy

A comprehensive index known as the Consumer Confidence Index (CCI) has shown that our consumers are pessimistic about their economic future. In a first of its kind move to measure consumer sentiment in India, the overall score 39.9 was recorded for the month of March 2012. This is markedly higher than the low it recorded in December 2011 (35.8). Since then it has been trending upwards, indicating slightly better prospects, but still in bearish territory.

However, despite poor consumer sentiment (which is very different from investor sentiment), which is usually a big factor in determining the direction of the Indian economy, the stock market has been climbing and is up roughly 12% since January. Ever more so, the Reserve Bank of India (RBI) has simply done a horrific job of containing the aam admi's expectations, and even worsened their present situation.

The CCI Index is designed to measure how consumers are feeling about the economy and their ability and desire to spend across India. The index, created by BluFin, takes into consideration the present as well as the future. These so called Present Situation and Future Expectation indices each are further divided into three sub-indices measuring consumers' opinions on: a) inflation b) spending and c) employment prospects.

The Present Situation index showed a reading of 45.7, which is 0.6% lower than the last month and 2% lower over the last six months, indicating that the situation is worsening. On the other hand, the future expectations sub-index showed a 14% improvement in the sentiment over the last six months climbing to 37.6, showing optimism bias in play. However, it is still lower than the Present Situation index which is a cause of concern for policy makers and the markets.

But the RBI doesn't seem to care about the sentiments of the average Indians, especially the poor, when it catered to the demands of the institutions by adopting a loose money policy by cutting the cash credit ratio (CRR) by 50 basis points. The stock markets have been flying as central banks world over adopted the same policy. It is pertinent to note that majority of the Indians are pessimistic with regard to inflation which is, of course, hampering spending.

North India had a bleak view on inflation showing just 17.2 (whole of India being 23.5), which is extremely pessimistic. South India recorded the highest score of just 28.5. Further, inflation sentiment has worsened not just in the north, but in the east and west, as well. Over the last six months, inflation sentiment has fallen by 49.6%, 33.5% and 15.1% respectively to 17.2, 20.6 and 25.9 respectively.

Despite poor inflation, employment has been relatively stable, at 47.2, which is near neutral territory, with Kochi recording a healthy 65.1. The other side of the spectrum is Japiur- at 29.7.

On an overall basis, out of the 18 cities that were sampled, the only city that was "slightly optimistic" was Mangalore, which showed a reading of 52.6, while the most pessimistic were the residents from the Pink City-Jaipur-which recorded as low as 30.4.

The score is measured on a scale of 0-100, with 100 indicating perfect optimism while 0 is the exact opposite. This is the first time that the Consumer Confidence Index has been put to practice on a monthly basis.

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