Upbeat consumer confidence brightens India’s economic outlook.

Upbeat consumer confidence brightens India’s economic outlook

Indians are more confident about their jobs prospects, personal finances and ability to spend as consumer confidence in India surged to a nine-year high in the first quarter of 2016, indicating a pickup in the Asia’s third biggest economy.

India tops global consumer confidence leaderboard

According to a report by market research agency, Nielsen, the consumer confidence index score for India increased three points in the March quarter to 134, the highest since 2007. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.

According to the report, 83 per cent of the urban Indian respondents were confident about improved employment conditions in the country. Further, 85 per cent of urban Indian respondents remained hopeful about their personal finances, while 66 per cent Indians felt that it was a good time to spend.

Global consumer confidence remains stable

Consumer confidence at the global level remained stable in the first quarter but stood below the baseline score of 100, indicating pessimism. The score grew one index point to 98 in the March 2016 quarter compared to three months ended December 2015.

In the first quarter, Philippines (119) and Indonesia (117) stood at second and third position globally in terms of consumer confidence after India. Consumer confidence score surged 10 points to 110 in the US. Whereas, most of Europe (including UK and Germany), Latin America, Saudi Arabia, United Arab Emirates, Japan, Canada, China and Hong Kong witnessed quarter-on-quarter drop in the confidence level in Q1.

What’s driving consumer confidence in India?

The surge in the consumer confidence was primarily bolstered by the government’s vision to play the role of an enabler to ensure sustained growth. The government’s much campaigned ‘Make in India’ reform coupled with ‘start-up India’ campaign seems to have played a crucial role in improving the overall consumer sentiment through the promise of job creation.

The consumers also seem to have remained optimistic following the Budget announcements and government’s commitment to stick to its fiscal consolidation goals and its focus on inclusive & sustained growth.

Further, robust macroeconomic indicators including strong GDP growth and softening inflation, coupled with lower interest rates have also added to the cheerful mood of Indian consumers.

Latin Manharlal Group

Strengthening forex reserves to improve India’s economic outlook.

Amidst the fear of global economic slowdown and flight of funds from emerging countries, surge in India’s foreign exchange reserves has brought the much needed relief to the system, lifting the outlook for Asia’s third biggest economy.

Under the guidance of Reserve Bank of India (RBI) Governor, Raghuram Rajan, the foreign exchange reserves have surged from a three-year low in September 2013 as he stimulated inflows by offering discounted currency swaps to the banks.

Forex reserves at record high

Maintaining the uptrend of the past several weeks, India’s forex reserves soared by USD 1.52 billion to a record high of USD 363.12 billion in the week ended April 29, 2016, the Reserve Bank of India noted.

The country's forex reserves had gone up by USD 1.35 billion to USD 361.601 billion in the week before.

What’s driving the surge

The spike in foreign exchange reserves was primarily on account of rise in the value of foreign currency assets that constitute a major part of the overall reserves.

Foreign currency assets, which are expressed in dollar terms and comprises the effect of appreciation or depreciation of non US currencies such as euro, pound and yen held in reserves, grew from USD 337.537 billion to USD 339.02 billion in the week ended April 29, 2016.

Further, a surge in the Indian rupee amid a pick-up in dollar inflows into local equity and debt markets has given adequate opportunity to the RBI to purchase dollars in the currency market.

Forex reserve to help curb volatility

The central bank is increasing reserves to stand any volatility in outflows amid sluggish growth in China and forecasts that the Federal Reserve will consider raising US interest rates.

Earlier this month, Raghuram Rajan cut the benchmark interest rate and promised to end a prolonged funding squeeze in the financial system by infusing cash via bond repurchases. He said, the central bank would buy dollars and bonds to infuse funds into the banking system.

A strong forex reserves kitty will help the Indian economy overcome any possible volatility in foreign capital flows amidst heightened global economic uncertainty on account of weak commodity prices and worries over a China slowdown.   

Latin Manharlal  Group