Indian Consumers most Confident Despite Demonetisation

Despite the effects of demonetisation, consumer confidence in India soared to the highest level in 10 years in the fourth quarter of 2016, indicating that Indians are most confident about their jobs prospects, personal finances and ability to spend.

According to a report by market research agency, Nielsen, the consumer confidence index score for India in the fourth quarter of the calendar year 2016 was 136, three places ahead of the rank it achieved in the third quarter of 2016.

The Nielsen consumer confidence index measures perceptions of local job prospects, personal finances and immediate spending intentions in 63 countries. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively. 

The report suggests that demonetisation has not been able to dent the confidence of Indian consumers. The increase in consumer confidencecame at a time when the Government of India announced a ban on high-value notes, covered during the agency's survey period, stretching from October 31 to November 18, 2016. While the demonetisation move created short-term pains for consumers, the long-term outlook remains bullish.

Sentiment levels on local job prospects over the next 12 months have gone up by three percentage points to 84 per cent this quarter from 81 per cent in Q3, 2016. Over four in five online respondents (84 per cent) indicate increase in optimism on state of personal finance, same as the last quarter. In addition, 70 per cent urban Indians indicated that it's good time to buy things they want and need over the next 12 month for the quarter.

The surge in the consumer confidence is supported 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’ campaigns are driving investments across sectors and propelling confidence in the business landscape.

Consumer confidence at global level moved modestly in 2016, rising three points between the first and fourth quarter to 101. The biggest increase was in the Philippines, where confidence rose 13 points from the first quarter to the fourth quarter. As per the report, the world's largest economy, United States came at the third position in the consumer confidence index, jumping 17 points as against the same quarter of 2015. 

Latin Manharlal Group

RBI Maintains Status Quo as Inflation Risks Rise

India's central bank has refrained from tinkering with the key lending rates, opting to wait for more clarity on the uncertain inflation landscape and on how a radical crackdown on black money is affecting economic growth.

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kept its benchmark repo rate (the rate at which banks borrow short-term funds from the central bank) unchanged at 6.25 per cent, during its third bi-monthly monetary policy review -the sixth and the final one for the fiscal 2016-17.

The monetary policy announcement marked a key shift in the central banks’ stance. The MPC decided to change its position from accommodative to neutral in order to assess the transitory effects of demonetisation on inflation and output gap (the gap between actual economic growth and potential economic growth).

The change in stance essentially marks an end to a period in which the central bank slashed interest rates by a total of 175 bps from January 2015 to October 2016, starting with previous Governor RaghuramRajan and continuing under Urjit Patel.

The central bank also lowered its economic growth forecast for 2016-17 to 6.9 per cent from the 7.1 per cent it had forecast in its fifth bi-monthly policy in December. Before the demonetisation exercise, RBI was expecting the economy to grow at 7.6 per cent.

Retail inflation, the RBI’s benchmark gauge for prices, decelerated to a two-year low of 3.41 per cent in December, but RBI seems more focused on non-food, non-fuel inflation. With this move, the RBI hints that it will now keep its eyes on the inflation target of 4 per cent.

The monetary policy committee further highlighted concerns around the global policy environment, impact of rising global commodity prices and strengthening of the dollar among others.

At the same time, the central bank is expecting a recovery in economic growth in the coming financial year, albeit its gross value added projections show only a 50-basis point rise to 7.4 per cent in 2017-18.

Latin Manharlal Group