India’s demand-driven economy is now boosted with the advent of a stable government elected on majority vote. Investors and industrialists alike have gained confidence in the current market scenario, thereby influencing a slow positive shift in consumer spending patterns as well. More than 55% of India’s real GDP depends on consumer spending, making it a major contributing factor towards the health of the country’s economy. Though this trend is more prevalent in urban India than its rural counterparts, it’s a primary indicator of progress in the economy.
Consumer Confidence Index is one of the proprietary indices from Zyfin, a market research and analytics firm in India which estimates the consumer sentiment with respect to urban population in India. It acts as a barometer measuring consumer confidence, shedding light on current and future spending plans, inflation and employment outlook. At present, a pan-India survey is conducted across 18 cities with a sample of 4000 consumers on a monthly basis.
The latest report on Consumer Confidence Index has registered a score of 42.0 for the month of May as against 40.6 for the previous month. About 13 out of 18 cities in India have shown improved consumer sentiment with Mumbai, Hyderabad, Mangalore, Chennai and Bhubaneswar listed as the top five cities with the highest scores. This reflects an upward movement in consumer outlook or sentiment with every consecutive month.
Now, what does this score mean to our economy? The index is marked such that a score above 50 reveals an optimistic consumer outlook while below 50 indicates a pessimistic consumer outlook. Not denying the fact that Consumer Confidence Index score of 42.0 is far less than the optimal score of 50. But then, a gradual rise in the index for every successive month is quite a promising sign.
Key points from the ZyFin Consumer Confidence Index for May 2014:
* The Consumer Confidence Index of India increased to 42.0 in May 2014, from 40.6 in April 2014. Therefore, the index estimates a considerable amount of recovery in the consumers’ willingness to spend in the upcoming months. It can also be amounted to the establishment of strong government bestowed with all the parliamentary power necessary to implement economic reforms.
* On a cautionary note, the index is basically a forecast about the future trends in consumer sentiment. The consumers across the urban India continue to follow a sluggish macro-economy with only an insignificant progress in employment and inflation sentiment. Therefore, only when the policy reforms proposed by the current government show concrete results, consumer’s outlook on fundamental macro issues would change.
In addition to the Consumer Confidence Index, there are few other parameters involved in determining the consumer sentiment in Indian economy.
* Inflation Sentiment Index which is considered as the largest inflationary forecast survey globally increased to 25.6 in May 2014 after two months at 25.1, reporting a moderate advance in consumer sentiment towards inflationary conditions.
* Spending Sentiment Index has shown an improvement for the first time since December 2013, to 28.1 in May 2014 from 25.9 in April 2014.
* Employment Sentiment Index stayed almost constant, moving to 51.7 in May 2014, from 51.6 in April 2014.
According to Debopam Chaudhuri, the chief economist at ZyFin, Consumer Confidence Index figures for the month of May 2014 suggests that the Reserve Bank of India signalling a softer interest rate system would improve the consumers’ willingness to spend over the next three to four months. As a result, the auto and real estate sectors would witness a much anticipated revival, influencing an upsurge to the slumping economy which has about 55% in consumer spending.
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