|A lot on her mind: Ms. Bharat is worried
about prices, employment and income, and that will soon hurt
are we playing doomsayers, you may be tempted to ask. For if the
BT-Indica Research Index of Consumer Sentiment (BT-IRICS) for October
2004 stands at 158, exactly at the same level as September 2003,
though off from its highs of 163 (February 2004) and 169 (July 2004),
consumer sentiment looks pretty rosy if not downright buoyant, right?
Actually no, and that's the real unhappy story, for some numbers,
as usual, often conceal more than what they reveal.
Move away from the aggregate index figure-it
measures consumer confidence across 10 major cities-of 158 and what
you discover is a picture of gloom. All five variables that track
future economic expectations (a year from now)-family financial
status, business conditions, employment, price and real income-are
down compared to September 2003, and down by anywhere between 10
per cent and 50 per cent. Even the consumer's sense of her current
economic condition, though marginally up from September 2003, is
tempered by a grey outlook on business conditions.
"A year ago, everything, interest rates,
inflation and oil prices was looking benign," says Indranil
Pan, Chief Economist at Kotak Mahindra Bank. Not any longer, with
inflation hovering at over 7 per cent, oil at an all time high of
over $52 (Rs 2,392) per barrel and the government artificially keeping
the lid down on interest rates.
"From the macro economy, the consumer is
getting a negative perception about the future," says Saumitra
Chaudhuri, Chief Economist, ICRA. He is right; according to consumers,
the UPA government's performance on broader economic policy and
specifically its ability to control prices has been dismal, with
less than a fifth giving it any positive score on these counts.
Over two-thirds of consumers polled were affected
adversely by the increase in prices of cooking gas and petrol. And
what's telling, in spite of inflation as measured by the Wholesale
Price Index climbing down from a high of 8.3 per cent in August
this year to the current 7.2 per cent, is that consumers expect
prices of all essential commodities including vegetables, cooking
oils and milk products to climb up further.
The oil price hike-led softening of the global
economy, with the IMF scaling down growth forecast for 2005 from
4.3 per cent to 4 per cent, is sure to drag even Indian Gross Domestic
Product growth down to under 6 per cent from a beginning-of-the-year
projection of over 7 per cent. "The common man is very worried
about rising prices, and perhaps this is impacting his perception
on the economy's future," says Soumya Mohanty, Director, Indica
|All variables that track
economic expectations a year from now are down compared to September
2003, by 10 per cent to 50 per cent
With an all-time high pessimism on jobs (merely
8 per cent consumers expect the market to turn good in the next
one year) the cycle of negative perceptions will only accentuate
and this will drive consumer sentiment down in the future, unless
global oil prices suddenly reverse their upward course. That looks
But amidst all this gloom, the consumption
mood looks, quite surprisingly, very buoyant. It is in fact high
to very high scores on discretionary spends and willingness to buy
a household durable, vehicle or house that is lifting the overall
index to a seemingly high-and-happy 158. What explains this consumer
contradiction in being relatively less optimistic on future income,
yet bullish on spends, even for big ticket products such as durables,
two-wheelers and cars?
"It is only a natural reaction of the
consumer (to advance her purchase) to beat high inflation and expectation
of a rising interest rate," explains Kotak's Pan. His argument
is borne out by the Reserve Bank of India's figures showing that
growth in household savings (over 10 per cent) has been more than
growth in household debt (9 per cent) for the past year, proving
once again that the fundamental nature of Indian consumerism hasn't
changed much. "The consumption mood is possibly upbeat because
people may want to buy now, due to concerns looming large about
the future," admits Pawan Goenka, Chief Operating Officer (Auto),
Mahindra & Mahindra.
Seen from this perspective, the consumer's
current propensity to buy more is merely a reflection of a short-lived
window of opportunity, made more attractive by massive discounting
and promotions by marketers pushing everything, from durables to
autos. "Well, most marketers haven't held back, even though
there is a hint of caution in their optimism this year," says
Ashutosh Srivastava, Managing Director of media buying biggie Group
M in India.
Not surprisingly, marketers across the board
are focussed on reaping this current strong consumption sentiment,
unmindful of the bigger and more fundamental changes that will start
adversely impacting their fortunes very soon. "A late festival
season this year (Diwali is in November) will affect sales positively.
The consumer has more time to mentally prepare himself to buy,"
says V. Chandramauli, Vice President (Sales & Marketing), Mirc
Electronics. Well, a long buying cycle cuts both ways, with its
need for a sustained marketing push meaning increased marketing
spends. Between LG, Samsung, Electrolux, Mirc, Videocon and Haier,
there is almost Rs 300 crore riding on promotions this festive season.
And with input costs increasing, this may well turn out to be the
wrong time to burn money on promotions in the case of durables or
price reductions in fast moving consumer goods. "Sustainability
of some price reductions in FMCGs looks doubtful," says Satish
Kumar, Managing Director of Henkel Spic India.
Though no one will admit as much, it is a fact
that durable marketers today are more worried than they were last
year. "They are headed for profitless growth," says Partha
Sinha, Executive Vice President, Publicis India. And even while
most durable and auto marketers speak about a double digit growth
in volumes, everyone is cagey when it comes to discussing margins
and profits. For surely, while a worried consumer may buy more purely
because the promotional or finance offer is great, it takes a happy
and optimistic one to pay more.
| INDICA RESEARCH INDEX OF CONSUMER SENTIMENT:
The Indica Research Opinion
A Different Story
The Indica Research Index is back
at 158, exactly where it was in September 2003. Moreover, we
now have three metrics for the pre-festival season index, for
the years 2002-, -03 and -04.
|Indica Research's Executive Director
The upshot is that while the composite mood is the same
as it was in this period in 2003, the key elements tell a
different story. (See chart "Mood Of The IRICS".
It sums up 8 of the key elements; the Index uses 11).
The upshot is that:
- This year has been good on income-and financial status.
The mood on spending is better than it was last pre-festival
- Next year seems like it will be horrible however. Especially
on all business, price, employment and financial conditions.
HOW WE DID IT
Total sample 1,215
Delhi (125), Mumbai (123), Chennai (121), Bangalore (121),
Hyderabad (120), Kolkata (120), Ahmedabad (120), Lucknow
(120), Kochi (119), Nagpur (126)
random sampling process; 600 male and 615 female; SEC
A 599 respondents and SEC B 616 respondents
interviews using a structured questionnaire
questionnaire covered three core areas: current assessment
of economic situation, expectation about the future economic
situation and overall consumption mood
key variables for indexing, the survey also measured explanatory
key variables for indexing, the survey also measured explanatory
data was weighted; each variable first indexed for Nett
then indexed as proportion of total score possible
This index then weighted to arrive at All India Index
of Consumer Confidence
The net result is that the mood is stunned into one of immobility.
The price expectations has always been the lowest-and has
sunk even more. The drop in 'income in relation to price'-the
most pronounced fall-is thus understandable. The tangible
increase in prices breaks down any feel-good on the improved
This time we also measured the items where the price increase
has affected customers the most (not used in the Index though).
Of course it is petrol/diesel and cooking gas that lead the
pack with nearly 70 per cent mentions for both. But from our
perspective, the notable fact is that it's water that is mentioned
by nearly 10 per cent of the sec A and B households.
The point is not the figure of 10 per cent, so much as what
it should really have been for the price of water. We should
note that, ironically, marginal cost of water is the concept
used in economics to explain why diamonds cost as much as
So this IRICS is a quick reminder to all those who drove
up the Consumer Sentiment in July to 169-by creating expectations
especially on employment and prices. Someone just has to pay
attention to the basics, some of which will be 'hygiene factors'
in more ways than one.