The blues aren't in yet: Job optimism blunts the impact of a fading monsoon and a Budget that had little in it for the middle class

It's a tough one. For if the BT-Indica Research Index of Consumer Sentiment (BT-IRICS) for July 2004, at 169, stands at its highest in the last 24 months, shouldn't we be feeling great as consumers? Not really, for even while the index-which measures consumer confidence across 10 major cities-may have inched up six points from an already 'feel-good' high of 163 in February 2004, virtually on all counts, barring job prospects and prices, consumer sentiment is down.

Price-adjusted real income is down almost a third and so is expectation on income and business environment. Purchase intent for big ticket items such as an automobile or a durable is down, with the only solace being a sharp rise in the propensity for impulse/discretionary spends and less savings.

"The environment of buying has definitely slowed down. For durables, it is down almost a quarter, year-on-year, right now," says Ravinder Zutshi, Director, Samsung India Electronics. Indecisive elections, an ambivalent budget, and to top it all, a truant monsoon, have clearly played spoilsport with what looked like a perfectly laid out party earlier this year.

The stockmarkets, ruling at close to 6,000 even till early May, tanked almost 1,000 points, wiping off nearly Rs 2 lakh crore of investor wealth. And consumers still seem to be adjusting themselves to the impact of the budget, and holding on to their purse strings for now. Confusion still abounds on the exact impact of Finance Minister P. Chidambaram's proposals, favourable or unfavourable, on consumers' finances, with a split right in the middle amongst 1,200-odd consumers that bt-irics spoke to. What the budget seems to have given with one hand (in terms of hiking income tax limit to Rs 1-lakh, and unchanged small savings rate), it has taken away with another through a blanket 2 per cent cess on all taxes other than sales tax and the hike in service tax.

A hurriedly cobbled together rag-tag coalition in the United Progressive Alliance, with its biggest supporter, the Left Front, opting to remain outside the government hasn't helped assuage fears of political instability either. "There is also this element of poor delivery expectation from this government," says Ashima Goyal of the Indira Gandhi Institute of Developmental Research (IGIDR).

"The budget did not have much impact on consumer expendables, though the feel-good of earlier this year has somewhat rubbed off, and the possible monsoon failure will impact with a delay," says Sunil Duggal, Chief Executive Officer, Dabur India.

What's intriguing, though, is this huge optimism on jobs, and that alone is keeping the sentiment up. There is even a slight and surprising positive feel on prices coming down, even while inflation has risen from 5.9 per cent in February this year to 6.5 per cent right now. What explains this turnaround? For, in the last two years of bt-irics, it was precisely this perception of jobs and prices that was holding the index down.

"There could be lessons for everyone here on the structure of modern economies where growth turns up before employment," adds igidr's Goyal. And she may be right, for a robust 9.1 per cent Gross Domestic Product (GDP) growth last year has created room for over two million jobs across sectors such as telecom, retail, it, BPO, banking, insurance and healthcare in the next four-to-five years. "We tend to forget that in macroeconomic terms, the economy is doing very well, akin to 1994-95, with investment plans lined up."

Just look around, and you'll notice that even traditional industries such as automobiles, cement, steel, and power are revving up capacities, either through greenfield ventures or adding to existing capacity. And naturally, there is this expectation of buoyancy in capacity addition fuelling new jobs. And even with drought staring us in the face, no one really has scaled down GDP growth projections below 6 per cent this year. That's because a resurgent global economy, led by the United States and Japan, does provide the cushion India needs for growth, at least this year, even if agriculture suffers because of weak monsoons.

"It would be tempting to read this (job optimism) as a structural shift in policy from mere consumption generation to employment generation, but this Budget should be read more in terms of a subtle shift in emphasis from the urban to the rural," says Santosh Desai, President, McCann Erickson India. Clearly then, the consumer optimism seems to have plateaued, if not declined. It would be interesting to look out for BT-IRICS next quarter trend on jobs, for that alone will indicate whether the shift towards more jobs is real or not.

-additional reporting by Amanpreet Singh