There’s a strange consumer paradox playing out in India right now

Is it time to spend yet?
Is it time to spend yet?
Image: Reuters/Anindito Mukherjee
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Indians are more confident about their jobs prospects, personal finances and ability to spend, but they still aren’t opening up their wallets properly.

For the first time since 2007, research agency Nielsen’s Consumer Confidence Index (CCI) has moved up by three index points in the first quarter of 2016. The index tracks consumer sentiment on discretionary spends, job prospects and the country’s economic health.

Despite the improvement in consumer sentiment, more than half of urban Indians remain skeptical about an economic recovery. In the first quarter of 2016, 53% respondents still feel that the country is in an economic recession, which is 3% higher than last quarter’s numbers.

The Reserve Bank of India’s latest consumer confidence survey released in April 2016 also noted that 79% of the 5,200 respondents expected spending on essential items to increase. About 38% of respondents also expected expenses on non-essential items to rise.

Little wonder then that Indian consumers are loathe to spend. ”Though consumer optimism is at its highest level since 2007, discretionary spending levels are yet to see big recovery,” Abneesh Roy, associate director for institutional equities at brokerage firm Edelweiss Securities Limited, said in a May 17 note.

Nonetheless, much of the improvement in Nielsen’s Consumer Confidence Index is thanks to the Modi’s government’s commitment to fiscal consolidation and inclusive growth, which were highlighted in the February 2016 union budget.

“In the days following the (budget) announcement, an improvement in various macroeconomic indicators was evident,” said Roosevelt D’Souza, managing director of Nielsen India. “The government seems to be on its way to achieving its objectives of low inflation, low interest rates and high GDP growth—a scenario optimal for improved consumer spending.”

Overall, though, the Indian economy is reeling after two consecutive years of drought. India Inc is feeling the pain in its balance sheets. Millions of rural consumers, who depend on agriculture, have been singed by the lack of rainfall. And urban households, which are yet to completely recover from the battering of the financial crisis and a prolonged period of high inflation, haven’t been spared either.

But if the coming monsoon rains are bountiful, as has been forecasted, the situation could change swiftly. Till then, consumers and companies must remain thrifty, and keep the rain gods appeased.