Indicus in News

Crumbling Consumer Confidence
India feels much like Julie Andrews in Sound of Music marching away from her life in a convent to the von Trapp mansion. Spring in every step but it wavers slightly at the thought of the imposing Captain von Trapp and his seven children: the fear of an economic slowdown along with inflation, energy prices, food prices, interest rates, political instability, an unsure US economy and the wavering consumer confidence.
Consumer confidence (CC) broadly refers to the degree of belief attached by the consumer in the stability of economic variables. It acts as a proxy for the extent of consumer spending ceteris paribus i.e. assuming a given level of income, prices and other variables. Several research agencies across the globe are involved in quantifying this ordinal phenomenon through a Consumer Confidence Index or CCI. Each agency uses a different methodology and definition but all of them across the board have reported a downscaling for the month of June 2008.

• India: The Nielsen CCI for India has fallen by 11 points to 122 the lowest level in the last five runs of the survey
• USA: The Conference Board CCI currently stands at 50.4 (1985=100), the fifth lowest reading ever.
• UK: The Nationwide CCI dropped to 61, down from 65 in May, to hit a new low for the sixth consecutive month.
• China: China's National Bureau of Statistics' CCI fell to 94.1 percentage points in the second quarter, 2.7 percentage points lower than in the same period last year.
• Japan: Japan's Cabinet Office's Sentiment Index dropped to 32.6 in June the lowest since the government began compiling the figures in 1982.
• Korea: Korea's National Statistical Office's index measuring consumer confidence and living conditions for the next six months, dropped to 86.8 in June from 92.2 the previous month, the lowest since December 2004.

While USA took the biggest hit in its CC level, Japan and Korea are at the bottom of the pile as the most unenthusiastic spenders. However consumers in the Asia-Pacific region are still relatively optimistic and better off than the rest of the world in terms of confidence.
CC and consequently consumer spending has a butterfly effect on the economy through the phenomenon of circular flows of national income. One person's expenditure is another's income and a reduction in the former will generate signals that will reduce production hence incomes and finally consumption; thus dampening the entire economy.
The constant culprit is undeniably inflation, which has made the consumers dither, producers falter and incomes quiver. Besides the falling confidence, added problems are posed by the fact that consumers have up scaled inflation expectations. Policy makers and central banks across the world are playing the blame game with the Keynesian - Monetarist debate of whether inflation is a monetary phenomenon adding hydrogen to the fire. The best way to predict the future is to invent it and its time policymakers play inventors.

Trends in Profiles of Urban Consumers
Highlights

• Young India: Urban India is young with 70% of its population in the age band of 18- 60 years. Moreover, the age group of 18-24 is the most imposing category with a quarter of India's population concentrated in this band.
• Consumerism aplenty: Urban India consumes more than it saves with the average APC lying in the band of 0.7-0.8.
• Prominence of primary sector in cities continues: With the exception of Alpha cities, the primary sector is a employer in all cities
• Rising per capita incomes: Urban incomes are rising and significantly higher than the national per capita incomes.

Source: City Skyline of India

In Focus: Urban Consumer Demography
Urban India's population pyramid today has a narrow base and a protrusion in the middle that tapers off at the top. On an average, across Alpha, Beta, Gamma and Delta* cities; there is a nearly identical demographic pattern as depicted. 

This age distribution points to the classic youth bulge indicating the need for a focus on education and other employability enhancing investments. With a smaller percentage of the population being dependent today, the iron is hot and this is the time to strike. Efficient workforce planning can help the economy cash in on the mettle of the youth and also generate the base for old age income security provisions which will be a must when this bulge ages.

As far as consumption habits are concerned, a cross sectional scrutiny of average propensity to consume (APC) reveals Alpha & Beta cities exhibit a higher average APC with lower dispersion while Gamma & Delta cities display a smaller average APC with greater dispersion. This means that there exists a greater propensity to consume more consistently in mature cities and a comparatively higher propensity to save in the developing cities with lesser consistency. It is important to note that the APC on an average is high lying in the band of 0.7-0.8. So is consumption the new fad in urban India or the mere result of a desire for upward social mobility? An analysis of trends in national incomes proves otherwise and reinforces the Keynesian concept of induced consumption. Consumer spending has risen as a result of increasing personal disposable incomes. This is evident in average per day per capita income (PDPCY) estimates of Alpha, Beta, Gamma and Delta cities which is Rs. 228, Rs. 154, Rs. 169 and Rs. 170 respectively. These numbers are significantly higher than the national PDPCY, thus underscoring the dualism in the Indian economy on one hand and the well being of urban India on the other.

Source: City Skyline of India