Consumer Outlook Weakens On High Borrowing Costs and Price Rise

Demand expected to remain muted during the festive season unless confidence improves

ZyFin Research's Consumer Outlook Index stood at 45.9 during August, 2015 as against 46.4 recorded during July, 2015 registering 1.1% decline. Pessimistic sentiments created by high borrowing costs in tandem with prevalent price pressures contributed to the decline in the index. However, India is hopeful of improving economic conditions in the near future thereby improving consumption cycle. It may be noted here that the COI during August 2015 registered 5.3% gain from a low of 43.6 reported same period previous year.

Giving his views on the ZyFin Consumer Outlook Index numbers for the month of August, Debopam Chaudhuri, Chief Economist, ZyFin Research, said, Indian consumers are once again losing confidence on economic recovery. This may have a negative impact on aggregate demand during this year's festive period. Recent GDP estimates for the June quarter is already hinting at a slowing rate of private consumption, as a percentage of GDP. The Government needs to accelerate measures to maintain confidence to ensure a sustained growth.

The Consumer Outlook Index (COI) is a measure of consumer sentiment in urban India based on outlook towards employment, inflation and spending plans. It is based on a monthly survey of 3,000 consumers in 11 cities across India. A score above 50 reflects optimism, while below 50 is an indication of pessimism.

Highlights of Consumer Outlook Index

The COI stood at 45.9 during August, 2015 registering 5.3% gain as against same period previous year. The annualized index depicts an improving trend with the only exception being East India. The Eastern region marked by poverty, illiteracy, poor infrastructure and political insurgency illustrated 7.5% decline in the COI index scoring 37.6.

The Borrowing Comfort Index contracted by 11.2% (y-o-y) to stand at 42.4 during August, 2015. The Central Bank's rigid policy rates contributed to decline in the borrowing comfort. Also, Ineffective transmission of interest rates cuts from the RBI to the end consumer was reflected in the declining index.

With the Inflation Sentiment Index registering 1.2% (m-o-m) decline to 31.9 inflation is likely to rise in near future. The south-west monsoon playing truant backed expectations of price pressures in the economy. However, normal to above normal rains in the regions of Uttar Pradesh, Bihar, Assam and sub-Himalayan parts of West Bengal defied the trend of rising inflation.

The Spending Sentiment Index for India witnessed month on month growth of 1.3% at 37.6 on an all-India level. An uptrend in the economic conditions guiding the nation coupled with softening oil and commodity prices globally added cheer to the index. However, the age group 55 and above voiced gloominess towards spending comfort with their index declining by 8.3% to 31.5 during August, 2015.

The Economic Conditions and Employment Sentiment Indices continued to remain encouraging at 66.7 and 56.5 respectively.

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