Indian consumer cofidence declines

The latest CNBC-TV18 Boston Analytics Consumer Confidence Index for March 2009 registered a fall of 5.6 per cent to 73.5,  from the February 2009 reading of 77.6.

The index value for March is the lowest since the inception of the index in January 2008. The March survey sends reveals there is strong undercurrent of fear in the minds of the Indian consumer. Weakening optimism about economic and personal finance conditions and deepening pessimism about employment conditions seem to be the key reasons for the massive decline in sentiments.

The March reading continues to reflect a drop in consumer confidence in both current and future expectations of economic conditions. The primary negative drivers this month were declining confidence in household income, job security, and general economic conditions.

 In particular, consumers were gloomy about the state of the labor market and they expressed fear of further hardship to come.  On a somewhat positive note, the consumer spending portion of the data does suggest that there is some early evidence that lower interest rates are beginning to make an impact in a few cities by improving the extreme pessimism in consumer spending plans that was observed there in prior months.

"The CNBC-TV18 Boston Analytics Consumer Confidence Index is clearly signaling a worrisome slowdown and the latest figure suggests that it is premature to speculate that the economy will recover in the short run'' said Dr. Sam Thomas, Ph.D., director, research and development at Boston Analytics.

The index is designed to measure consumer confidence in India on a monthly basis. The index is derived from a monthly survey of nearly 10,000 respondents across 15 Indian cities, which makes it the largest and most comprehensive exercise of this kind in the country.

The index is a monthly barometer of the opinion of Indian consumers regarding the current state and future expectations of the macro economy, household financial conditions and consumption. It is computed from responses to 25 questions covering various variables known to affect consumer confidence. These variables pertain to general economic conditions, employment, inflation, interest rates, real estate, household financial conditions, household income, household spending plans, and savings.

The CNBC-TV18 Boston Analytics Consumer Confidence Index consists of two sub-indices - the 'current situations index' and the 'future expectations index'. Both the indices were at lower levels compared to the previous month. The current situation confidence index stands at 71.3 for March 2009, a decline of 5.8 per cent from the previous month's level of 75.7.

Similarly, the future expectations confidence index also registered a decline in the last month, decreasing by 1 per cent from 77.8 in February 2009 to 77.1 in March 2009.

The index, a leading indicator variable for tracking business cycles, has been showing a downward trend for the last twelve months (since its first sharp fall in March 2008). There are five derived indices too covering employment conditions, inflation, real estate, savings, and consumer spending. While the employment confidence index saw a 10.5 per cent fall in March, its sharpest fall since November 2008, the consumer spending confidence inched up 10 per cent.

Commenting on this positive trend, a CNBC-TV18 spokesperson said that, ''The only way to read the positive number in the consumer spending confidence is a decline in pessimism levels and not a trend reversal. This could be attributed to the government efforts to prop up demand. Also, the positive sentiment is largely evident in Tier III towns and continues to remain negative in metros and most Tier I cities.''