End of 2009 showed signs of increased consumer confidence. CNBC-TV18 Boston Analytics Confidence Index (CNBC Index) tracked three months consecutive improvement, following long-term decline.
Sudden decline in confidence
Both surveys now show that confidence has slipped. The CNBC Index fell 4.9% in December.
Nielsen Survey - despite India ranking second globally, 20 index points higher than the global average of 87 - detected cautious optimism. India is second column from the left, red line provides global average.
Cost of groceries
Both surveys cite retail inflation as a major (not sole) reason for caution - not surprising when groceries account for 58% of household spend - compared to 15% in developed nations.
Nielsen found that food prices were the biggest consumer concern, beating job security, global warming and the economy.
The driest spell in nearly 40 years and floods in parts of India have pushed up food prices.
Food inflation was running at over 18% at the end of December. Year-on-year prices soared, potato prices were up 110%, pulses 42% and vegetables 30%. In addition, sugar prices are at a high, this years output is likely to reach 15.3 million tonnes, well short of domestic consumption of about 23 million tonnes.
The middle classes are becoming more prudent, spend on discretionary items is down. Battery sales have declined 10.8%, cough lozenges 7.4% and lollipop's 4.4%.
Save not spend
As a result rather than spend, India's consumer is saving. After meeting necessary living expenses, 65% of consumers are saving. Becoming more risk averse, 40% are likely to invest in the stock market, down 4% on Q3.
Metro city optimism
Boston Analytics Economist, Debopam Chaudhuri, makes an important observation about urban recovery, "Headline numbers in Delhi and Mumbai registered an improvement over November". The CNBC Index shows overall decline is due to Tier II and Tier III cities, where higher grocery bills will be felt sooner.
Critical to longer-term recovery, it appears, according to the CNBC Index, that the Governments stimulus package has arrested the unrelenting decline in major cities.
Despite regional differences, until inflation comes under control consumers appear unwilling to loosen the purse strings. It has to be hoped that increased consumer confidence in Metro cities boosts the economy at large, and an improvement in confidence trickles down to Tier II and Tier II cities.
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