Project 4th Sem

7/28/2019 Project 4th Sem

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OBJECTIVE OF THE STUDY-

To study the changing consumer confidence index worldwide during the recession period and post

recession and their spending habits in various categories.


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NEED FOR THE STUDY

Consumer confidence index is a tool to measure how the different consumers are feeling of

the current economic situations. Consumer confidence index defines the degree of

optimism on the state of the economy that consumers are expressing through their

activities of savings and spending. The study of consumer confidence index serves as a

decision making tool for manufacturers, retailers, banks and the government.


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Limitations of the study- The study conducted for the preparation of the project is

based on the data published by Central Statistical Organisation , Government of India. The

project work requires detail information of various consumer related data from various

countries as well as different states of the country. Only the data published on governmentwebsite are used to conduct the research study. Moreover very little information is available

on consumer confidence report on India.

Time is another constraint due to which adequate amount of data cannot be collected for

the completion of the study.

Apart from time, the project focuses on the survey of confidence index of consumers during

economic downturn period of 2007-2010, so the project work is only carried out on the past

data.


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RESEARCH METHODOLGY-

The research methodology for the project work is based on the qualitative analysis of data

publis hed by Central Statistical Organisation, of India and AC NIELSEN global consumer

confidence index report during the recession period 2007-2010.

RESEARCH DESIGN- Research design is made in a way to understand consumer spending

during the recession period and consumer sentiments associated with market and

government.

Research design consists of both primary data and secondary data to understand the effect

of recession during global turndown period of 2007-2010 and consumer behaviour during

the post recession period.

PRIMARY DATA- It is the data collected through interaction with consumers to get a

firsthand experience of the consumers in the market. Primary data has been collected for

the project to understand consumer spending patterns, cost cutting methodology used and

monthly budget on various commodities.

SECONDARY DATA- Data collected from other source which includes published reports,articles in newspaper, internet to understand associated terminology for the project work.

Secondary data has been collected for this project work from Central Statistical

Organisation and AC NIELSEN global consumer confidence report to understand global

consumer spending habits and customer spending habits in a post recession period.


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PREFACE- Today, India is much more integrated with the world economy through both the

current and capital accounts. The down turn that appears to have begun in the USA in

September, 2008 have some negative impact on Indian economy. The most immediate

effect of this global financial crisis on India is an outflow of foreign institutional investment(FII) from the equity market. This withdrawal by the FIIs led to a steep depreciation of the

rupee. The banking and non banking financial institutions have been suffering losses. The

recession generated the financial crisis in USA and other developed economies have

adversely affe cted Indias export of software and IT services. For fighting this crisis,

government of India responded through its monetary policy by pumping the liquidity into

the system rather than using effective fiscal policy i.e. public expenditure and investment to

face the recession. No doubt, government has introduced three fiscal stimulus packages for

stimulating demand in the economy but it was not sufficient, the larger government

expenditure should be oriented towards agriculture and infrastructure. Although India has

revived to high growth, this new growth should have to come from some new speculative

bubble but from enlarged government expenditure that directly improves the livelihood of

the people. The present paper is an attempt to understand the economic scenario and the

consumer confidence during the economic downturn.


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RECESSION- In economics, a recession is a business cycle contraction, a general slowdown in

economic activity. Macroeconomic indicators such as GDP, employment, investment, spending,

capacity utilization, household income, business profits and inflation fall, while bankruptcies and

unemployment rate rise.

Recessions generally occur when there is a widespread drop in spending, often following an adverse

supply shock or the bursting of an economic bubble. Governments usually respond to recessions by

adopting expansionary macroeconomic policies, such as increasing money supply, increasing

government spending and decreasing taxation.

ATTRIBUTES

A recession has many attributes that can occur simultaneously and includes declines in componentmeasures of economic activity (GDP) such as consumption, investment, government spending, and net

export activity. These summary measures reflect underlying drivers such as employment levels and skills,

household savings rates, corporate investment decisions, interest rates, demographics, and government

policies.

Economist Richard C. Koo wrote that under ideal conditions, a country's economy should have the

household sector as net savers and the corporate sector as net borrowers, with the government budget

nearly balanced and net exports near zero. When these relationships become imbalanced, recession can

develop within the country or create pressure for recession in another country. Policy responses are often

designed to drive the economy back towards this ideal state of balance.

A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic

depression, although some argue that their causes and cures can be different. As an informal shorthand,

economists sometimes refer to different recession shapes, such as V-shaped, U-shaped, L-shaped and W-

shaped recessions.
http://en.wikipedia.org/wiki/Supply_shockhttp://en.wikipedia.org/wiki/Macroeconomic_policieshttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Fiscal_policyhttp://en.wikipedia.org/wiki/Fiscal_policyhttp://en.wikipedia.org/wiki/Richard_Koohttp://en.wikipedia.org/wiki/Depression_(economics)http://en.wikipedia.org/wiki/Depression_(economics)http://en.wikipedia.org/wiki/Recession_shapeshttp://en.wikipedia.org/wiki/V-shaped_recessionhttp://en.wikipedia.org/wiki/U-shaped_recessionhttp://en.wikipedia.org/wiki/L-shaped_recessionhttp://en.wikipedia.org/wiki/W-shaped_recessionhttp://en.wikipedia.org/wiki/W-shaped_recessionhttp://en.wikipedia.org/wiki/W-shaped_recessionhttp://en.wikipedia.org/wiki/W-shaped_recessionhttp://en.wikipedia.org/wiki/L-shaped_recessionhttp://en.wikipedia.org/wiki/U-shaped_recessionhttp://en.wikipedia.org/wiki/V-shaped_recessionhttp://en.wikipedia.org/wiki/Recession_shapeshttp://en.wikipedia.org/wiki/Depression_(economics)http://en.wikipedia.org/wiki/Depression_(economics)http://en.wikipedia.org/wiki/Richard_Koohttp://en.wikipedia.org/wiki/Fiscal_policyhttp://en.wikipedia.org/wiki/Fiscal_policyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Macroeconomic_policieshttp://en.wikipedia.org/wiki/Supply_shock


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Type of recession or shape

v- Shaped recession

The Recession of 1953 in the United States is a classic V-shape. Percent Change From

Preceding Period in Real Gross Domestic Product (annualized; seasonally adjusted) ; Average GDP growth1947 2009

In a V-shaped recession, the economy suffers a sharp but brief period of economic

decline with a clearly defined trough, followed by a strong recovery. V-shapes are the

normal shape for recession: "There is a strong hist orical snap back relationship

between the strength of economic recovery and the severity of the preceding recession.Thus, recessions and their recoveries have a tendency to trace out a V shape.

U-Shaped recession

Percent Change From Preceding Period in Real Gross Domestic Product (annualized; seasonally adjusted) ; Average GDPgrowth 1947 2009

A U-shaped recession is longer than a V-shaped recession, and has a less-clearly

defined trough. GDP may shrink for several quarters, and only slowly return to trend
http://en.wikipedia.org/wiki/Recession_of_1953http://en.wikipedia.org/wiki/Recession_of_1953http://en.wikipedia.org/wiki/Recession_of_1953http://en.wikipedia.org/wiki/File:1973-75_recession.jpghttp://en.wikipedia.org/wiki/File:1953_recession_in_US.jpghttp://en.wikipedia.org/wiki/File:1973-75_recession.jpghttp://en.wikipedia.org/wiki/File:1953_recession_in_US.jpghttp://en.wikipedia.org/wiki/Recession_of_1953


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growth. Simon Johnson, former chief economist for the International Monetary Fund,

says a U-shaped recession is like a bathtub: "You go in. You stay in. The sides are

slippery. You know, maybe there's some bumpy stuff in the bottom, but you don't come

out of the bathtub for a long time."

The 1973 75 recession can be considered a U-shaped recession. In early 1973 the

economy began to shrink and continued to decline or have very low growth for nearly

two years. After bumping along the bottom, the economy climbed back to recovery in

1975.

W-Shaped recession

The early 1980s recession in the United States is sometimes given as an example of a W-shaped recession.

Percent Change From Preceding Period in Real Gross Domestic Product (annualized; seasonally adjusted) ; Average GDPgrowth 1947 2009

A W-shaped recession, occurs when the economy has a recession, emerges from the

recession with a short period of growth, but quickly falls back into recession.

The early 1980s recession in the United States is cited as an example of a W-shaped

recession .[4] The National Bureau of Economic Research considers two recessions to

have occurred in the early 1980s .[5]

The economy fell into recession from January 1980to July 1980, shrinking at an 8 percent annual rate from April to June 1980. The

economy then entered a quick period of growth, and in the first three months of 1981

grew at an 8.4 percent annual rate. As the Federal Reserve under Paul Volcker raised

interest rates to fight inflation, the economy dipped back into recession (hence, the

"double dip") from July 1981 to November 1982. The economy then entered a period of

mostly robust growth for the rest of the decade.
http://en.wikipedia.org/wiki/Simon_Johnson_(economist)http://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/1973%E2%80%9375_recessionhttp://en.wikipedia.org/wiki/1973%E2%80%9375_recessionhttp://en.wikipedia.org/wiki/1973%E2%80%9375_recessionhttp://en.wikipedia.org/wiki/Early_1980s_recessionhttp://en.wikipedia.org/wiki/Early_1980s_recessionhttp://en.wikipedia.org/wiki/Early_1980s_recessionhttp://en.wikipedia.org/wiki/Early_1980s_recessionhttp://en.wikipedia.org/wiki/Recession_shapes#cite_note-ForexNewsNow-3http://en.wikipedia.org/wiki/Recession_shapes#cite_note-ForexNewsNow-3http://en.wikipedia.org/wiki/Recession_shapes#cite_note-ForexNewsNow-3http://en.wikipedia.org/wiki/National_Bureau_of_Economic_Researchhttp://en.wikipedia.org/wiki/Recession_shapes#cite_note-NBER-4http://en.wikipedia.org/wiki/Recession_shapes#cite_note-NBER-4http://en.wikipedia.org/wiki/Recession_shapes#cite_note-NBER-4http://en.wikipedia.org/wiki/Paul_Volckerhttp://en.wikipedia.org/wiki/File:Early-80s_recession.jpghttp://en.wikipedia.org/wiki/Paul_Volckerhttp://en.wikipedia.org/wiki/Recession_shapes#cite_note-NBER-4http://en.wikipedia.org/wiki/National_Bureau_of_Economic_Researchhttp://en.wikipedia.org/wiki/Recession_shapes#cite_note-ForexNewsNow-3http://en.wikipedia.org/wiki/Early_1980s_recessionhttp://en.wikipedia.org/wiki/Early_1980s_recessionhttp://en.wikipedia.org/wiki/1973%E2%80%9375_recessionhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Simon_Johnson_(economist)


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L-shaped recession

The Japanese asset price bubble led to a Lost Decade in Japan ; this period has been characterized as an L-

shaped recovery.

Percent Change From Preceding Year in Real Gross Domestic Product ; Average GDP growth 1950 2000

An L-shaped recession occurs when an economy has a severe recession and does not

return to trend line growth for many years, if ever. The steep drop, followed by a flat line

makes the shape of an L. This is the most severe of the different shapes of recession.

Alternative terms for long periods of underperformance include "depression" and lost

decade.

A classic example of an L-shaped recession occurred in Japan following the bursting of

the Japanese asset price bubble in 1990. From the end of World War II throughout the

1980s, Japan's economy was growing robustly. In the late 1980s a massive asset-price

bubble developed in Japan. After the bubble burst the economy suffered from deflation,

and experienced years of sluggish growth; never returning to the higher growth Japan

experienced from 1950-1990. Because the late-2000s recession in the United States

followed a similar economic bubble (the United States housing bubble) some economists

fear the U.S. economy could enter a prolonged period of low growth even after

recovering from the recession.
http://en.wikipedia.org/wiki/Japanese_asset_price_bubblehttp://en.wikipedia.org/wiki/Japanese_asset_price_bubblehttp://en.wikipedia.org/wiki/Japanese_asset_price_bubblehttp://en.wikipedia.org/wiki/Lost_Decade_(Japan)http://en.wikipedia.org/wiki/Lost_Decade_(Japan)http://en.wikipedia.org/wiki/Lost_Decade_(Japan)http://en.wikipedia.org/wiki/Depression_(economics)http://en.wikipedia.org/wiki/Lost_decadehttp://en.wikipedia.org/wiki/Lost_decadehttp://en.wikipedia.org/wiki/Japanese_asset_price_bubblehttp://en.wikipedia.org/wiki/Economic_bubblehttp://en.wikipedia.org/wiki/Economic_bubblehttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Late-2000s_recessionhttp://en.wikipedia.org/wiki/United_States_housing_bubblehttp://en.wikipedia.org/wiki/File:Japan's_asset_bubble.jpghttp://en.wikipedia.org/wiki/United_States_housing_bubblehttp://en.wikipedia.org/wiki/Late-2000s_recessionhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Economic_bubblehttp://en.wikipedia.org/wiki/Economic_bubblehttp://en.wikipedia.org/wiki/Japanese_asset_price_bubblehttp://en.wikipedia.org/wiki/Lost_decadehttp://en.wikipedia.org/wiki/Lost_decadehttp://en.wikipedia.org/wiki/Depression_(economics)http://en.wikipedia.org/wiki/Lost_Decade_(Japan)http://en.wikipedia.org/wiki/Japanese_asset_price_bubble


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Psychological aspects

Recessions have psychological and confidence aspects. For example, if the expectation

develops that economic activity will slow, firms may decide to reduce employment levels and

save money rather than invest. Such expectations can create a self-reinforcing downwardcycle, bringing about or worsening a recession. Consumer confidence is one measure used

to evaluate economic sentiment. The term animal spirits has been used to describe the

psychological factors underlying economic activity. Economist Robert J. Shiller wrote that the

term "...refers also to the sense of trust we have in each other, our sense of fairness in

economic dealings, and our sense of the extent of corruption and bad faith. When animal

spirits are on ebb, consumers do not want to spend and businesses do not want to make

capital expenditures or hire people.

Balance sheet recession

The bursting of a real estate or financial asset price bubble can cause a recession. For

example, economist Richard Koo wrote that Japan's "Great Recession" that began in 1990

was a "balance sheet recession." It was triggered by a collapse in land and stock prices,

which caused Japanese firms to have negative equity, meaning their assets were worth less

than their liabilities. Despite zero interest rates and expansion of the money supply to

encourage borrowing, Japanese corporations in aggregate opted to pay down their debts

from their own business earnings rather than borrow to invest as firms typically do.Corporate investment, a key demand component of GDP, fell enormously (22% of GDP)

between 1990 and its peak decline in 2003.

Liquidity trap

A liquidity trap is a Keynesian theory that a situation can develop in which interest rates

reach near zero (ZIRP) yet do not effectively stimulate the economy. In theory, near-zero

interest rates should encourage firms and consumers to borrow and spend. However, if too

many individuals or corporations focus on saving or paying down debt rather than spending,lower interest rates have less effect on investment and consumption behaviour; the lower

interest rates are like "pushing on a string." Economist Paul Krugman described the U.S.

2009 recession and Japan's lost decade as liquidity traps. One remedy to a liquidity trap is

expanding the money supply via quantitative easing or other techniques in which money is

effectively printed to purchase assets, thereby creating inflationary expectations that cause

savers to begin spending again. Government stimulus spending and mercantilist policies to

stimulate exports and reduce imports are other techniques to stimulate demand. He

estimated in March 2010 that developed countries representing 70% of the world's GDPwere caught in a liquidity trap.
http://en.wikipedia.org/wiki/Animal_spirits_(Keynes)http://en.wikipedia.org/wiki/Robert_J._Shillerhttp://en.wikipedia.org/wiki/Negative_equityhttp://en.wikipedia.org/wiki/Liquidity_traphttp://en.wikipedia.org/wiki/Keynesianhttp://en.wikipedia.org/wiki/ZIRPhttp://en.wikipedia.org/wiki/Paul_Krugmanhttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Lost_decade_(Japan)http://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Mercantilismhttp://en.wikipedia.org/wiki/Mercantilismhttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Lost_decade_(Japan)http://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Subprime_mortgage_crisishttp://en.wikipedia.org/wiki/Paul_Krugmanhttp://en.wikipedia.org/wiki/ZIRPhttp://en.wikipedia.org/wiki/Keynesianhttp://en.wikipedia.org/wiki/Liquidity_traphttp://en.wikipedia.org/wiki/Negative_equityhttp://en.wikipedia.org/wiki/Robert_J._Shillerhttp://en.wikipedia.org/wiki/Animal_spirits_(Keynes)


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Predictors

Although there are no completely reliable predictors, the following are regarded to be

possible predictors.

Inverted yield curve the model developed by economist Jonathan H. Wright, uses yields

on 10-year and three-month Treasury securities as well as the Fed's overnight funds

rate. Another model developed by Federal Reserve Bank of New York economists uses

only the 10-year/three-month spread. It is, however, not a definite indicator;

The three-month change in the unemployment rate and initial jobless claims.

Lowering of asset prices, such as homes and financial assets, or high personal and

corporate debt levels.

Impacts

Unemployment

The full impact of a recession on employment may not be felt for several quarters. Researchin Britain shows that low-skilled, low-educated workers and the young are most vulnerable to

unemployment in a downturn. After recessions in Britain in the 1980s and 1990s, it took five

years for unemployment to fall back to its original levels. Many companies often expect

employment discrimination claims to rise during a recession.

Business

Productivity tends to fall in the early stages of a recession, and then rises again as weaker

firms close. The variation in profitability between firms rises sharply. Recessions have also

provided opportunities for anti-competitive mergers, with a negative impact on the wider

economy: the suspension of competition policy in the United States in the 1930s may have

extended the Great Depression.

Social effects

The living standards of people dependent on wages and salaries are more affected by

recessions than those who rely on fixed incomes orwelfare benefits. The loss of a job is

known to have a negative impact on the stability of families, and individuals' health and well-

being.
http://en.wikipedia.org/wiki/Inverted_yield_curvehttp://en.wikipedia.org/wiki/Fed_funds_ratehttp://en.wikipedia.org/wiki/Fed_funds_ratehttp://en.wikipedia.org/wiki/Productivityhttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Anti-competitivehttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Competition_policyhttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Living_standardshttp://en.wikipedia.org/wiki/Salarieshttp://en.wikipedia.org/wiki/Fixed_incomehttp://en.wikipedia.org/wiki/Welfare_benefitshttp://en.wikipedia.org/wiki/Welfare_benefitshttp://en.wikipedia.org/wiki/Fixed_incomehttp://en.wikipedia.org/wiki/Salarieshttp://en.wikipedia.org/wiki/Living_standardshttp://en.wikipedia.org/wiki/Great_Depressionhttp://en.wikipedia.org/wiki/Competition_policyhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Anti-competitivehttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Productivityhttp://en.wikipedia.org/wiki/Fed_funds_ratehttp://en.wikipedia.org/wiki/Fed_funds_ratehttp://en.wikipedia.org/wiki/Inverted_yield_curve


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INTRODUCTION TO THE INDIAN ECONOMY

In the era of globalization financial crisis seems to have been occurring with greater

frequency. The crises of Latin America in the early 1980s and Mexico, Asia and Russia in

the 1990s were the four major crises. The fifth one is the recent global financial crisis. Tenyear ago, financial crisis of the East Asia was due to a real estate bubble in the Thailand

burst, triggering the flight of international speculative capital, today, it is fallout of the real

estate crisis in the USA which threatens the financial markets. The global financial crisis of

2008-09 emerged in September 2008 with the failure merger of several large United States

based financial firms and spread with the insolvency of additional companies, governments

in Europe, recession and declining stock market prices around the globe. But the financial

crisis really started to show its effects in the middle of 2007. Around the world, stock markets

have fallen, large financial institutions have collapsed or been bought out and governments

in even the wealthiest nations have had to come up with rescue packages to bail out their

financial systems. The crisis has become one of the most radical reshaping of the global

banking sector, as governments and the private sector battle to share up the financial

system following the disappearance of Lehman Brothers and Merrill as independent entities.

Actually, the collapse of Lehman Brothers was a symbol of the global financial crisis. The

real sector in many countries was already feeling the effects. Many industrialized nations

were sliding into recession. The crisis became so severe that after the failure and buyouts of

major institutions, the Bush administrations offered a $700billion bailout plan for the US

financial system.

Market liberalization and privatization in the commodity sector have also not resulted in

greater stability of international commodity prices. There is wide spread dissatisfaction with

the outcomes of unregulated financial and commodity markets, which fail to transmit reliable

price signals for commodity producers. For the developing countries like India, the rise in

food prices as well as the knock on effects from the financial instability and uncertainty in the

industrialized nations, are having compounding effect. High fuel costs, soaring commodity

prices together with fears of global recession are warning many analysts. The impact of the

global crisis has been transmitted to the Indian economy through three distinct channels,

namely: the financial sector, exports and exchange rates. The other significant channel of

impact is the fall in business and consumer confidence leading to decrease in investment

and consumer demand. The Indian government, to boost the demand, has announced

several stimulus packages.


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IMPACT OF THE GLOBAL MELTDOWN ON INDIAN ECONOMY

The Indian economy has shown negative impact of the recent global financial meltdown. Though the

public sector in India, including nationalized banks could somehow insulate the injurious effects of

globalization as we are also part of the globalization strategy of neo-liberalization, there is a limit of

our ability to resist global recession, which may change into a great depression. The impact of the

crisis was significantly different for the Indian economy as opposed to the western developed

nations.

Year GDP (at 2004-05 Price) Growth in %

2005-06 3254216 9.5

2006-07 3566011 9.6

2007-08 3898958 9.3

2008-09 4162509 6.8

2009-10 4493743 8.0

2010-11 4879232 8.6

TABLE-1 TRENDS IN GDP AT FACTOR COST PRICE IN RS CRORE

Fig1 Trends in GDP (growth rate in %)

After a long spell of growth, the Indian economy was experiencing a down turn. Table (I) shows that

n 2006-07 the GDP growth rate was 9.6% which became 9.3% in 2007-08 and due to the impact of recent global financial crisis and global recession, the growth rate of Indian economy became


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Year Amount

1999-2000 2339

2000-01 2160

2001-02 1846

2002-03 562

2003-04 9949

2004-05 10272

2005-06 9332

2006-07 6707

2007-08 16040

2008-09* -8857

*April-nov2008-09

Table-2 USNET INVESTMENT OF FIIS AT MONTHLY EXCHANGE RATE

(IN $ MILLION)

Fig 2 Net Investment of FIIs (At monthly Exchange Rate)


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In 2007-08, net Foreign Institutional Investments (FIIs) inflows into India amounted to $16040

million. But in April-November 2008 it was negative to $8857 million. Due to this, there was a

collapse in stock prices. As a result, the Sensex fell from its closing peak of 20873 on January 2008 to

nearly 8000 in October-November 2008.

Fig 3 Daily movements of BSE Sensex in 2008-09

Source: Bombay Stock Exchange, India

The foreign exchange market came under pressure because of reversal of capital flows as part of theglobal decelerating process. Foreign exchange reserves were depleting. It was $ 309.7 billion in

2007-08 and came down to $252.0 billion in 2008-09, which shows the direct impact of the financial

crisis on India's foreign exchange reserves.


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Fig 4 Foreign Exchange reserve (in US $ billion)

The shrinking of aggregate in the world market as a consequence of the crisis has hurt the

exporting manufacturing industries in the country. Table (3) shows that in 2007- 08, Indiasexport and import were $162904 million and $251439 million respectively and balance of

payment was $ -88535 million. And in 2008-09, export and import were $185295 million and

$303696 million respectively. The balance of payment was $ -118401 million. The growth

rate of export and import also declined to 13.3 percent and 20.7 percent from 29.0 and 35.5

percent respectively during that period. In 2009-10 the export and import further declined

very much to $178751 million and $288373 million respectively. In 2009-10 the export

growth rate was -3.5 percent and import growth rate was -5.0 percent. The balance of

payment was $ -109622. This shows that Ind ias exports are adversely affected by theslowdown in global markets. This is already evident in certain industries like the garments

industries where there have been significant job losses with the onset of the crisis. This

along with a squeeze in the high-income service sectors like financial services, hospitality

and tourism etc. led to a reduction in consumption spending and overall demand with the

domestic economy. A direct consequence of this was a simultaneous loss of informal

employment and lower generation of new non-farm employment in the economy. The

depreciation of rupee could not positively affect the exports bill of India.


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Year Export

(%growth)

Import

(%growth)

Balance of

Trade

2005-06 103091(23.4) 149166(33.8) -46075

2006-07 126414(22.6) 185735(24.5) -59321

2007-08 162904(29.0) 251439(35.5) -88535

2008-09 185295(13.3) 3036896(20.7) -118401

2009-10 178751(-3.1) 288373(-5.0) -109622

2010-11* 105064(29.5) 161051(19.0) -55987

*Data for 2010-11 are provisional

Source DGCI&S, Kolkata,India

s

Fig 5 Trends of Indias Export and Import


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RESPONSE OF GOVERNMENT AND RBI

The contagion from the global financial crisis required appropriate monetary and fiscal policy

responses to ensure enough liquidity in the economy, the orderly functioning of markets, and

the financial stability. The government of India and RBI responded to the challenge stronglythrough its fiscal and monetary policies. The government has introduced three fiscal stimulus

packages. These are expanded safety- net programme for the rural poor, the farm loan

waiver package and payout following the Sixth Pay Commission report for stimulating

demand in the economy. On the other hand in aftermath of the turmoil caused by

bankruptcy, the Reserve Bank has announced a series of measures to facilitate orderly

operation of financial markets and to ensure financial stability, which predominantly includes

extension of additional liquidity support to banks. The RBI has been effectively able to

manage domestic liquidity and monetary conditions consistent with its monetary policy. This

has been enabled by the appropriate use of a range of instruments available for liquidity

management with the Reserve Bank such as the Cash Reserve Ratio (CRR), which was

reduced to 5% in July 2009 from 9% in August 2008 and Statutory Liquidity Ratio (SLR)

stipulation and Open Market Operations (OMO) including the Market Stabilization Scheme

(MSS) and Liquidity Adjustment Facility (LAF). Reduction in the repo rate (the rate at which

RBI lends to the banks) from 9% as on October 2008 to 4.75% in July 2009 and the reverse

repo- rate (RBIs borrowing rate) reduced to 3.25% in July 2009 from 6% as on October 2008

in order to improve the flow of credit to productive sectors at viable costs so as to sustain the

growth. Further-more, money market liquidity is also impacted by our operation in the foreign

exchange market, which in turn, reflects the evolving capital flows. The existing set of

monetary instruments has thus, provided adequate flexibility to manage the evolving

situation. So the financial sector has emerged without much damage thanks in part of our

strong regulatory framework and in part on account of most of the nationalized banking

sector.s


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CONSUMER CONFIDENCE INDEX- Consumer Confidence Index (CCI) is an indicator

designed to measure consumer confidence which is defined as the degree of optimism on

the state of the economy that consumers are expressing through their activities of savings

and spending. Global consumer confidence is not measured. Country by country analysis

indicates huge variance around the globe.

The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100.

This year was chosen because it was neither a peak nor a trough. The index is calculated

each month on the basis of a household survey of consumers opinion on current conditions

and future expectation of the economy. Opinions on current condition make up 40% of the

index with expectations of future conditions comprising the remaining 60% .

CALCULATION

In simple terms, increased consumer confidence indicates economic growth in which

consumers are spending money, indicating higher consumption. Decreasing consumer

confidence implies slowing economic growth, and so consumers are likely to decrease their

spending. The idea is that the more confident people feel about the economy and their jobs

and incomes, the more likely they are to make purchases. Declining consumer confidence is

a sign of slowing economic growth and may indicate that the economy is headed into

trouble.

Each month The Conference Board surveys 5,000 households. The survey consists of five

questions that ask the respondents' opinions about the following:

1. Current business conditions

2. Business conditions for the next six months

3. Current employment conditions4. Employment conditions for the next six months

5. Total family income for the next six months

Survey participants are asked to answer each question as "positive", "negative" or "neutral".

Once the data have been gathered, a proportion known as the "relative value" is calculated

for each question separately. Each question's positive responses are divided by the sum of

its positive and negative responses. The relative value for each question is then compared

against each relative value from 1985. This comparison of the relative values results in an"index value" for each question.
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The index values for all five questions are then averaged together to form the Consumer

Confidence Index; the average of index values for questions one and three form the Present

Situation Index, and the average of index values for questions two, four and five form the

Expectations Index.

HOW IT IS USED

Manufacturers, retailers, banks and the government monitor changes in the CCI in order to

factor in the data in their decision-making processes. While index changes of less than 5%

are often dismissed as inconsequential, moves of 5% or more often indicate a change in the

direction of the economy.

A month-on-month decreasing trend suggests consumers have a negative outlook on their

ability to secure and retain good jobs. Thus, manufacturers may expect consumers to avoidretail purchases, particularly large-ticket items that require financing. Manufacturers may

pare down inventories to reduce overhead and/or delay investing in new projects and

facilities. Likewise, banks can anticipate a decrease in lending activity, mortgage

applications and credit card use. When faced with a down-trending index, the government

has a variety of options, such as issuing a tax rebate or taking other fiscal or monetary action

to stimulate the economy.

Conversely, a rising trend in consumer confidence indicates improvements in consumer

buying patterns. Manufacturers can increase production and hiring. Banks can expect

increased demand for credit. Builders can prepare for a rise in home construction and

government can anticipate improved tax revenues based on the increase in consumer

spending.


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CONSUMER CONFIDENCE INDEX WORLWIDE

CONSUMERS IN A POST RECESSION WORLD

Hopes for a full economic recovery accelerated in 26 out of 28 major global markets in the

2nd Quarter of 2009 according to the latest Nielsen Global Consumer Confidence Index

conducted in late June 2009. Driven by renewed consumer optimism and stock market gains

in BRIC and key Asian markets, the Nielsen Global Consumer Confidence Index rose five

Index points to 82 from 77. In addition, the number of consumers and countries who believe

their economy is currently in recession declined six Index points in the last three months,

with the most positive feelings of recovery emanating from the BRIC and Asian markets. In

the last few months, consumers and market sentiment has switched from recession to

recovery signaling a major turning point for the Global Financial Crisis.

0

20

40

60

80

100

120

I I I J

CONSUMER CONFIDENCE INDEX 2009

march

june

Country abbreviation

AE United Arab Emirates AR Argentina AT Austria AU Australia BE Belgium BR Brazil CA Canada CH Switzerland

CL Chile CN China CO Colombia CZ Czech Republic DE Germany DK Denmark EE Estonia EG Egypt ES Spain FI

Finland FR France GB United Kingdom GR Greece HK Hong Kong HU Hungary ID Indonesia IE Ireland IL Israel IN

India IT Italy JP Japan KO South Korea LT Lithuania LV Latvia MX Mexico MY Malaysia NL Netherlands NO

Norway NZ New Zealand PH Philippines PK Pakistan PL Poland PT Portugal RO Romania RU Russia SA Saudi

Arabia SE Sweden SG Singapore TH Thailand TR Turkey TW Taiwan US United States VE Venezuela VN Vietnam

ZA South Africa


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CAUTIOUS CONSUMERS

Many consumers plan to hold on to their thrifty recessionary habits in the post- recession

world. The severity of this recession has brought about a change in consumer values,

spending habits and lifestyle choices in many parts of the world, with some indication thatconsumers in the West will continue to refrain from excessive or unnecessary spending

across all aspects of their lifestyles - at least in the short term. Many consumers who cut

back on new clothes, out-of-home entertainment and take-away meals and switched to

cheaper grocery brands to make ends meet plan to stick to these new habits even when

economic conditions improve. Even though consumer confidence is returning in most

countries, the tactics and cutbacks that consumers adopted for the recession may be here to

stay for many Europeans, Pacific and American consumers. Forty eight percent of

Americans say they will continue to save on gas/electricity bills, 22 percent of Australians willcontinue to cut down on take-away meals and 23 percent of French say they will continue to

use their car less.

Nearly one in three (29%) global consumers will continue to economise on gas and

electricity, while one in six will continue to cut down on take- away meals. One in six global

consumers will continue to purchase cheaper grocery products, spend less on new clothes,

cut down on out-of-home entertainment and one in seven will reduce telephone expenses.

Saving on gas and electricity, cutting down on take-away meals and spending less on newclothes (and switching to cheaper groceries) are key global trends today that may stick in the

post recession world. On a regional basis, Pacific, North American and Western European

consumers will continue to switch to cheaper grocery products, while consumers in the

emerging markets of South Africa, Turkey and Latin America will try to reduce telephone

expenses in the post-recession era. Of all regions, Europeans will still be watching their

expenditure on out-of-home entertainment most closely. Not surprisingly, consumers in the

US and Europe -- hardest hit by the global recession -- are most determined to cling to future

cost saving measures in the post-recession world. Consumers in the BRIC markets, on theother hand, are generally looking forward to putting recent recessionary behaviours behind

them and returning to their previous spending patterns, especially Chinese and Russian

consumers.


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0102030405060

UTILIZATION OF SPARE CASH

Mar-09

Jun-09

BRIC and Asian markets scored the greatest increases in Consumer Confidence Indices in

the past three months. The Confidence Index climbed 13 points in India and rose eight

points in Russia and Brazil. While the BRIC markets did not escape the ravages of the global

recession, the downturn is unlikely to have a marked long-term impact on consumer

behaviour. Unlike their Western counterparts, resilient and adaptable BRIC consumers

simply tightened their belts temporarily and will soon return to their previous spending habits

and lifestyle. The experience of previous economic crises in Latin America in particular hasproduced a very adaptable consumer who had learnt to act quickly and make necessary

lifestyle cuts during downturns. Among the BRIC nations and perhaps all nations globally,

the Chinese today remain the most confident of an economic rebound in the near future. In

the Nielsen Global Confidence Survey conducted in March 2009, China recorded just a

seven point drop in consumer confidence in the past six months compared to double-digit

declines in Russia, Brazil and India. In the latest Nielsen Consumer Confidence Index in late

June, consumer confidence in China increased six Index points. Despite the global

recession hitting hard in 2008, China still managed to achieve moderate GDP growth. The

Chinese governments immediate response to the turndown with a domestic stimulus

package - equal to 13 percent of the countrys GDP - played a significant factor in reassuring

the Chinese that they would not be headed for a protracted economic slowdown. Advertising

spend in China grew by 17 percent in 2008, driven by ad increases in pharmaceutical/health,

toiletries, beverages, business/industry/agriculture and food products. Sales of FMCG

products remained robust and rose by 21 percent last year compared to 2007.


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GLOBAL COST CUTTING MEASURES ADOPTED BY CONSUMERS

On a global scale, continuing to save on gas and electricity bills has become a lifestyle habit.

Among those 69 percent who have already taken action to reduce these bills since the onset

of the recession, over 50 percent of Australians, Kiwis, South Africans, Filipinos, UK, Irishand US consumers say they will continue to take further action to reduce household utility

bills. As economic recovery gathers pace, consumption and spending will increase but the

post recession consumer is likely to consume very differently. The post-recession consumer

will think twice and sometimes thrice about making purchases, big or small. The recession

affected all social classes and has fundamentally changed how consumers consume and

particularly in the West where its now fashionable to be frugal; and trendy to be thrifty.

0 10 20 30 40 50 60

try to save on gas & electricity

cut down on out of home switch to cheaper grocery

delay upgrading technology

use car less often

look for better deals on cut down on at home cut down on smoking

COST CUTTING MEASURES ADOPTED BYCONSUMERS

actions predicted in march 09

actions taken in june 09

THE CHALLENGE FOR MARKETERS IN THE POST-RECESSION WORLD

Major international FMCG and fashion manufacturers face the same dilemma in the post-

recession world how to convince consumers to switch back to their old brands or try new

brands when they have experienced and been satisfied with the quality of a lower-priced

option theyve switched to during the recession. This question has played on manufacturers

minds throughout the recession resulting in an increased focus on product innovation. The

economic downturn sowed some ripe seeds for product innovation marketers know t heyre

going to need a particularly innovative product that hits all the right spots with consumers to

pry them away from their usual brand. Success in the post-recession era is based on

achieving the right combination of value, product innovation and competitive differentiation.

In addition to product innovation, manufacturers now have to consider the impact of brand

values and corporate responsibility on sales. Brand values used to be the domain of the


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marketer but these days, it has become a purchasing factor. The post-recession consumer

has reassessed their lifestyle and has become a more socially aware and ethically- minded

buyer. They expect the same values to resonate in the brands they buy and companies they

buy from. The successful, post-recession FMCG companies will have to be ethically and

socially accountable in the way their products are sourced and manufactured,

environmentally aware and good corporate citizens in every way.

CONSUMER BUYING BEHAVIOUR IN INDIA

India has always been a diverse market, with different consumer segments exhibiting varied

buying behaviour. The difference is that in the past the lower SEC consumers did not have

the same confidence about the future and therefore, if he aspired to something, he saved up

until he could afford to buy it. Today, the consumer would rather buy something

immediately, even if it means taking credit, rather than save and buy something tomorrow.

Thus, there has been a decreasing fear of debt and credit cards have become the new

currency. Total spends on cards in India are of the order of USD 15 billion, which sounds like

a reasonable number but is actually only 3 per cent of family consumption expenditure. In

other developed markets this number is around 30 per cent. The interesting point, however,is that this very paradox is actually a huge opportunity and it remains to be seen how

consumer companies will take advantage of it. What is important for marketers to understand

are the dynamics of this change. What is it that makes Indian consumers spend their money,

especially since it is finite and definitely lower than the income of their developed country

counterparts? A large part of consumption is currently being driven by emotional

discretionary income, enabling people to spend on things beyond basic necessities such as

food, education and shelter. But where will they make the trade-offs and what will they spend

on? Health or education; fashion or technology? These are the questions that are keepingIndian marketers awake at night.


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THE INDIAN CONSUMER MARKET LANDSCAPE

The Indian consumer story is one that has caught the attention of the rest of the world.

Rising incomes in the hands of a young population, a growing economy, expansion in the

availability of products and services and easy availability of credit all of this has given riseto new consumer segments and arising acceptability of debt. While consumerism has seen a

gradual build-up, what is certain today is that there has been a genuine uptake in

consumption. Whether it is mobile phones, credit cards, apparel or organised retail, people

clearly seem to be spending more, particularly on discretionary items. And the consumer

seems to be everywhere, whether it be the large metros, the emerging new cities, the small

towns and even rural India. What has emerged in this consumer story is the fact that there is

much more homogeneity in the market than ever before; for the first time some patterns

have begun to emerge in consumer behaviour. It is no longer true that a premium product

needs to be expensive and technology is a large contributor to this trend. So whether it is

mobile phones, digital music players or even the new Tata Nano, the price/value equation

has forever been altered. This has led to an increase in expectations as well as the desire

for immediate satisfaction, which in turn has raised expectations for customer service.

Today, every city has its premium consumers and its middle class consumers and this has

put companies into a fix. They now need to craft strategies that address the subtle

differences but satisfy each group equally. So what is the Indian consumer market today? It

is a market with three segments. The first comprises the top end with the mindset: I pay

more to get more , where the purchase is driven by the emotional surplus that the consumer

experiences. The second is the mid- level which thinks: I get good value at a reasonable

price . More important, however, is the large block at the bottom which says: I pay less and

I get less and is totally satisfied w ith that. This is probably a segment that many marketers

tend to overlook since they feel that there is no existing demand there. Nothing could be

further from the truth. There is a growing realisation today that it is easier to compete in the

smaller towns because many of the big brands and their marketing managers and sales

teams dont make the effort to travel there. Hence, if one does go there, market share is

easy to achieve because even though the overall pie is smaller, there is less competition.


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EMERGENCE OF THE NEW CONSUMER

Understanding the Indian consumer market means understanding its individual segments.

Pertinent questions facing Indian marketers today include:Who are the new consumers?

What are they spending their money on?

From pester power, kids have changed their role to becoming influencers. In the older age

group, they have actually become consultants, whom parents turn to for advice during the

decision- making process.

Three major emerging segments were identified: Kids, the Youth (including the young

working singles) and the Urban Indian Woman. These segments have shown a tremendous

increase in influencing and driving purchase decisions and hence are huge drivers of change

in the consumer market. More interestingly, purchases are being driven not by necessity, but

to satisfy individual needs. A high-potential emerging market is also the vast rural hinterland,

which has its own unique characteristics.

Kids: Getting older younger

There are 300 million children aged between 4 14 years in India a vast market by any

standards. The role that children play in purchase decisions has changed dramatically in thepast 4 5 years. And this is not only in product categories like confectionary and toys, but in

larger long-term-use categories such as cars, electronics and even consumer durables like

refrigerators and air conditioners, which were, traditionally, decisions taken by parents.

Today the roles are reversed, with kids pointing out the pros and cons of purchase decisions

to their parents. In fact, in the older age group, kids have actually become consultants,

whom parents turn to for advice during the decision-making process. One aspect that has

contributed to this change is the fact that kids seem to be growing older younger a 12-

year-o lds state of mind today is similar to what a 14-year olds would have been 10 yearsago. Due to a higher degree of exposure to the outside world, their awareness levels are

rising and as a result, they are clearer about what they want. Another driver is their mastery

of technology, which is a primary component of a high proportion of new products in the

market. The relative ease with which they are able to grasp technicalities and understand

product features and usability (or lack of) has made them experts in the eyes of their

parents.


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Parents are also becoming more indulgent. The relationship between parents and children

has changed, moving from a hierarchical system to one driven by respect for childrens

views

and abilities.

What is fascinating is th at this demographic shift is being seen across categories and even

across cities and is another characteristic of the homogeneity trend visible in the Indian

consumer market. As in the broader market, while the values, beliefs and way of life

between geographical areas maybe different, the shift in the role of kids in purchase

decisions is identical. This change also reflects social and economic drivers. The

relationship between parent and child has changed, moving from a hierarchical system to

one driven by respect for childrens views and abilities. Peer pressure for children and the

ever-increasing multitude of choices in products has also added to demand.

Youth: Charting their own path

With the majority of its population below the age of 25 years, Indias young consumer market

is the primary target of every consumer goods company. In terms of aspiration between SEC

A, B, C, D, E there is no difference in the mindset of the younger demographic. The

aspirations of the youth are the same, driven primarily by the fact that they are all Internetsavvy and this has given them equal access to information. They are also a unique market.

Along with the love for brands and gadgets, they are equally comfortable with Indian values

and Indian culture. Life is about visiting religious centres with their parents and then

spending the evening with friends at the local club or a similar social venue. Indian youth are

also very patriotic, not in the classical, pre independence sense but in a modern sense which

reflects their pride in being Indian in todays world. As a segment, they are on the whole

sensible, very clear about what they want to achieve in their lives and not easily carried

away by hype and show. The outsourcing phenomenon in India has been the main driver of this consumer segment. A larger number of younger people now have cash in hand and this

combined with increasing brand awareness has resulted in a lot of spending on leisure and

personal gratification. The young generation lives for today; the concept of saving for a rainy

day is alien to most of them especially since the majority of them have not experienced

shortages in their lives. This is also a segment constantly on the move mentally and

physically. The young do not want to be at home and are spending twice the amount of time

outside the house than they would have done a couple of years ago. So, whether they are at

a multiplex, a mall or a cyber caf, hanging out with friends is a clear preference. The youthpractices extreme multitasking using a mobile and an iPod as well as surfing the Internet,


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while chatting with friends. They seem to want to do five things at the same time!. All of this

has raised new challenges for marketers, the basic question being: How does one actually

address such a person and get inside their way of life? This is a segment which has a short

attention span, a limited amount of patience and is already focused on three other things at

the same time. Direct advertising through mobile phones is one option, but constant SMS-

ing can actually hurt a brand if it is taken as an intrusion into their privacy. Furthermore, this

segment is also very vocal about their feelings and will express their irritation with a brand to

an average of 9 10 individuals, compared with 2 3 a decade ago. For urban teenagers, or

those in a small town, there may be marginal differences in their degree of preparedness to

pay or their awareness levels, but they all have a similar mindset driven by the desire for

success and the need to enjoy that success. This is why it is such a great time to be a

consumer marketer today.

The Urban Woman: Defining her own space

In India, it has been a long-accepted fact that it is the women in a family who define the

environment at home. In the urban cities and even in small towns, they have been the silent

influencers for some time now, directing family purchases and expenditures. It is onlyrecently, however, that the urban woman has come into her own, and today there is no

looking back from her newly gained independence. In the past five years, there has been a

large increase in the product categories specifically targeted towards the urban woman. Be it

mobile phones, computers, apparel, jewellery or even financial products, women in the cities

are finding themselves spoilt for choice.

Which brings us to the question: Just who is this new age woman? What is she like?

One prominent manifestation of this segment is seen in the daily soap operas on Indiantelevision. While the characters may seem regressive at first glance, increasing viewership

has proved that they have struck a chord whether the woman is a homemaker or a

professional.

There is another unique characteristic of this segment. The urban woman wants to break out

from her traditional, sacrificing image, but does not want to go all the way. She wants to

conform to the values she believes in and yet wants to do her own thing. And in the midst of

this soul-searching process, the marketer is bewildered. It is a challenge to identify the

boundaries correctly and to touch the right chord with this new consumer.


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A measure of her growing independence is the changing profile of the urban womans out -of-

home activities. Today women go out with each other, a trend that was not seen previously.

They are also much more into indulgence and satisfying their emotional self. So, whether it

is spending time at clubs with friends, pampering herself at the salon, experimenting with

cosmetic surgery or enrolling at the fitness centre, the need to look good has now become a

priority. It is no longer only about getting married and having kids.

There are two things happening one is behavioural change in terms of the consumer and

the second is structural change in terms of the retail outlets themselves. Therefore, women

are feeling more and more secure that they can go into a store and actually get the product.

The Indian woman is perhaps less homogenous and more conflicted as a consumer group

compared to the Indian man. The change for women is starker. While the traditional role of

the male has not changed much, the role of the woman changes dramatically the minute she

achieves a level of economic empowerment or moves out of a joint family home into an

independent one where she has much greater ability to influence decision making. And while

she enjoys this independence, she may experience a certain level of conflict as she

constantly wrestles with her role change between her professional life and her domestic one.

The problem is compounded to a certain extent in that women have effectively transitioned

many generations in a very compressed period.

Rural India: Waking up to opportunity

The growing rural market in India has already become a focus for consumer companies.

There are regions of India that are growing at 15 30 per cent in terms of spending power.The aspirations of populations in the semi-urban and rural areas are also much greater than

their urban counterparts, especially because they are being exposed to a range of products

and services that they have never seen before. This translates into a larger marketing

opportunity for companies.

Purchases are sometimes triggered by social pressures, for example a farmer wanting to

buy the best tractor, not because he needs it but because his neighbour owns one. This kind

of behaviour leads to a higher number of loan defaults and often happens because there is a


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fine line between intention/desire to pay and ability to pay in the case of the average rural

consumer a sign that companies sometimes misread.

However, the scenario is changing. There was consensus across the board that technology

has given rural India a new identity. An area with potential is the smart card, which can beused for multiple purposes whether it be to draw cash or make payments for seeds and

fertilisers. The biggest benefit is that a smart card can be used by individuals who may be

illiterate as well, since it stores cardholder information and is linked to the purchase centres.

The retail experience is also distinct for new products and services. Gadgets like mobile

phones are sold through kiranas (small family stores) and telephone booths since those are

the outlets that have electricity. This is the total opposite of the mall culture seen in urban

India and it is a need that consumer companies will need to address. Another gulf between

urban and rural communities is consumer education. While rural consumers are becomingincreasingly comfortable with technology, understanding it is still on a need-to-know basis

and learning the basics is taken as sufficient.


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CONSUMER CONFIDENCE INDEX, INDIA

Consumer confidence is a key driver of economic growth. It is widely considered

an economic indicator of household consumption expenditure. Consumers tend to increase

consumption when they feel confident about the current and future economic situation of thecountry and their own financial situation

In economies such as India and the US where personal consumption represents 66% and

71% of GDP respectively, consumer confidence has a particularly significant impact on the

economy and can provide critical insight into its growth prospects

Despite the global economic recession, Indians seem to be quite confident of the economy

picking up in the near future they have a firm belief that the global recession will have a

limited impact on Indian economy due to large domestic consumptions. Though, therecession has had some impact on Information Technology, real estate and manufacturing

sectors still economists are of the opinion that India will not suffer a great impact. Most Asian

economies are models of prudence, unlike American and European households where

bo rrowing is up to the hilt. Asia s emerging economies have witnessed their GDP growing at

an annual rate of 7.5 percent over the past decade, two-and-a-half times as fast as rest of

the world. In a recent study, A.T. Kearney s Global Retail Development Index 2008

suggested that India is still the best investment destination for the retail sector followed by

Vietnam.

A few large corporate houses involved in the Indian retail sector have planned to go ahead

with their expansion strategies as per the schedule, despite the world financial turmoil. The

Consumer Confidence Index study (2008) further revealed that while Indians intentions to

spend on personal comforts such as new clothes, home improvements/ decorating,

technology products are stronger than the global average, their intention to spend on

holidays and out of home entertainment is much lower. In a nutshell, this indicates a general

tendency among Indians to lead a comfortable day-to-day life by cutting out the frills. For themarketers, investment in brands today is necessary to secure brand loyalty for better times

ahead. Ken Favaro, et.al (2009) is of the view that the retailers should use the following five

rules for retailing in recession times. But even in these tough times, retailers may win new

business and gain customer loyalty by focusing on people who are not their best customers

but yet by making sure they offer what those customers really value and demand. The five

rules as suggested by Ken Favaro to gain market share and protect margins are as follows:

1. Focus on customers who are loyal neither to the firm nor to their competitors.

2. Close the gap between the customer s needs and the current offering.
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3. Reduce the bad costs , those producing benefits customers won t pay for.

4. Cluster the stores according to local similarities and differences in customers needs and

purchase behavior.

5. Retool the processes customer research, merchandise planning, performance

management, strategic planning to position the company in a much better manner.

Retail Pricing Strategies in Recession Economies

A recession economy can cause severe price destruction and can force retailers to react

strategically. Resource abundant firms may use a predatory pricing strategy to maintain their

predominant position in a market, but resource-scarce firms must join the price destruction

war. However, even for the wealthiest firms, aggressive pricing may not be the solution for

success in a recession economy. Many studies have pointed out that the overuse of price as

a promotional tool may damage the prestige of the brand (Chapman and Wahlers 1999). It is

dangerous for firms to rush into price competition without considering the possible side

effects (i.e., the consumer perception of the quality of products or services). Firms need to

consider both internal and external influences on pricing when forming a sustainable strategy

to cope with price destruction.

Internal Influences on Pricing

To deal with the price destruction caused by a falling economy, the most prestigious brands

may be able to resist price attacks by competitors and preserve their competitive edge.

Nevertheless, most companies need to participate in a price war. The most cost-efficient

companies may be able to survive by driving the firms that are short on resources out of the

market (Guiltinan and Gundlach 1996). It is understandable that resources, whether

intangible or tangible, are the key for companies to outperform their competitors duringepisodes of price destruction. Thus, as stated by the resource-based school of thought, a

resource-based view should replace the product-based view in marketing decision making

(Wernerfelt 1989). A resource-based approach to marketing suggests that a long-term

cultivation of corporate level resources and capabilities will bring the organization a

sustainable competitive advantage (Barney 1986). Indeed, since the 1960s, models of

strengths, weaknesses, opportunities, and threats have been widely applied to strengthen

organizations competitive advantage by promoting both environmental analyses and

resource-based strategies. Firms make a constant effort to use internal strengths to seek


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external opportunities and to eliminate potential damages from outside threats. Firms are

advised to select resources that are compatible with themselves and that enhance their

capability in acquisition and cultivation in order to build up long-term competitive advantage.

External Influences on Pricing

Although the availability of organizational resources is an important perspective in the

consideration of an aggressive or predatory-pricing strategy, the demand-side effects of

such a strategy are another concern. Most consumers are sensitive to price. As Mazumdar

and Papatla (2000) note, consumers tend to use reference price as a supplementary guide

for consumption decisions, in which price information is accumulated either from previous

experiences or from comparisons made among available brands. As long as consumers use

price as an index for shopping, firms can use price to influence consumer behavior. For example, Miller, Ogden, and Latshaw (1998) show how price can be used to trigger

consumer behavior. In their analysis, they manipulate price and product features to influence

con sumers preferences for an assortment of products. They find a negative connection

between price level and willingness to buy. However, when a product features key values

that fit with consumers needs, firms can raise the price while keeping a preference for the

product stable. Chaudhuri and Holbrook (2001) provide a similar observation that Brand

affect resulting from a wanted hedonic value can increase loyalty to the brand and thus allow

for more room for price to rise. Indeed, for a costly purchase, consumers tend to believe thata price is fair when they agree with it. To some extent, price can be subordinate to product

worthiness in the consumption decision. In contrast, reference price can also be used to

signal product quality (Teas and Agarwal 2000; Yoo, Donthu, and Lee 2000). Chapman and

Wahlers (1999) report a positive link between reference price and consumers opinion about

product quality. Although a high-priced product (the actual price) can require a certain

amount of sacrifice on the part of consumers, it is equally true that the higher the price

(reference price) of a product, the greater is the esteem in which consumers hold the

product. Therefore, perceived value is the trade-off between perceived sacrifice andperceived prestige. Yoo, Donthu, and Lee (2000) also observe that a frequent use of price

deals results in an unfavorable quality perception and blocks brand associations and

awareness. These findings echo traditional beliefs in brand management that consumer

preference for a certain brand can be easily damaged after price promotion (e.g., Guadagni

and Little 1983; Ogilvy 1963; Scott and Yalch 1980). However, a few studies oppose this

assertion (e.g., Davis, Inman, and McAlister 1992). This inconsistency may be because of

contingent factors that moderate the price quality bond. As Hoch and colleagues (1995)

demonstrate, consumer demographic variables, such as age, education, family size, and


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DATA ANALYSIS


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CONSUMER CONFIDENCE INDEX INDIA 2008

Consumers in India are approaching the upcoming six months with increased levels of

optimism, according to the latest MasterCard Worldwide Index of Consumer Confidence

survey. Consumer confidence in India is now at its highest since the drop in late 2008 73.0 as against 63.9 in the second half of 2008 and is slightly above the average Index

score for Asia/Pacific (68.0).

According to MasterCard Worldwide Index, consumer confidence in India is now at its

highest level 73 points since the drop in late 2008. The Index is based on a survey, which

measures consumer confidence on consumer expectations for the next six months on five

indicators economy, employment, stock market, regular income and quality of life. The

index score is calculated with zero as the most pessimistic, 100 as most optimistic and 50 asneutral.

Amongst the five indicators, respondents in India seemed most optimistic about regular

income (75.4) slightly more positive than six months ago (74), it said. The quality of life

indicator grew to 71.3, consumers sentiment about the employment (70.8), consumers

perceptions about the economy (72.2) and employment (70.8). In terms of geographical

location, Chennai and Bangalore have displayed the highest levels of consumer optimism

among Indian cities with Index scores of 90.7 and 85.6 respectively.

Consumers in Mumbai have maintained healthy optimism with an Index score of 76.6. In

contrast, consumers in Delhi are less positive than their counterparts about the upcoming six

months, reporting an Index score of 38.0.

Across Asia-Pacific, which comprises 14 markets, the overall consumer confidence

remained modestly optimistic with an index score of 68, marginally lower than six months

ago (69.1) but higher than a year ago (66.3), when the region was beginning to recover from

the effects of the global financial crisis, the survey said.

Strong GDP growth and rising personal demand have fuelled a remarkable increase in

optimism among Indian consumers. This is clearly reflected in the increase in the Index

scores in India, across all five survey indicators as compared to six months ago.


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Consumer confidence across the Asia Pacific region has dropped 7 points in the last 6

months. The Mastercard worldwide index of consumer confidence reveals that consumers in

the region are pessimistic about the first six months of 2009.

Indias current index score is 63.9 showing that consumers in India, though optimistic, are

less so than six months ago (82.1) and a year ago (86.6). The score, slightly better than its

historical average of 62.3, is India's lowest score since 2004.

However, amongst the 14 countries surveyed by Mastercard, India along with China,

Vietnam and Singapore have shown optimism in consumer confidence which will continue till

early 2009. Of the three cities surveyed in India, Bangalore scored the highest thus giving a

boost to the overall score. Delhi and Mumbai have both seen a drop in consumer confidence

over the past 12 months.

Consumer sentiment in India has gone down on all five economic factors employment,

quality of life, regular income, stock market and the economy. Consumers are a lot less

optimistic about quality of life (58.9 against 87.7 six months ago) and employment (50.4

against 75.1).

"With the European and the US economies in a deepening recession, the world is looking to

Asia, particularly developing Asia, to provide the locomotive for global demand. In the past,

the region's households were more known for their propensity to save. Today the question

is, are they in a mood to spend, and can they replace the American consumer whose wealth

and income are both under assault. The results of the survey show that consumer

confidence in September 2008 is back to roughly its historic average," said Suman Bery,

director-general, National Council for Applied Economic Research (NCAER).

In the Asia Pacific region Vietnam tops the index, with a score of 88.1. At the other end of

the spectrum, nine markets are pessimistic about the first half of 2009, with Hong Kong (41.8

against 83.1 six months ago) and Taiwan (32.1 against 71.3 six months ago) recording the

biggest declines.


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The consumer confidence levels in India have risen by two points and reached 131 index

points Philippines followed India to the second spot with 120 index points and Norway came

third with 119 index points. Globally, confidence levels fell in 25 out of 52 countries surveyedin Q4 2010 as hope for a global economic recovery evaporated at the end of last year.

According to the survey, which polled over 29,000 Internet consumers in 52 countries in

November 2010, confidence levels fell in half of the countries surveyed as widespread

concern for unemployment, job creation, rising food and utility costs eradicated any

expectation of sustained economic recovery. The global consumer confidence index at the

end of 2010 remained unchanged from the previous quarter at 90 and finished the year two

index points below the start of the year.

India has topped the Consumer Confidence survey in all four quarters of 2010 and has also

seen a steady rise in index points. This is a good sign for us as this means that the economy

is fast moving out of the slowdown. But global economic conditions have made Indians wary

about the future and they are exercising some restraint in their spending habits. Three out of

ten Indians think that the country is in an economic recession. However the percentage of

Indians who think that the country is presently in recession has gone down by three percent

to 30 when compared to the last leg of the survey. Out of those who think that India is in a

recession, 55 percent believe that the country will be out of recession in the next twelvemonths, which again indicates an overall positive consumer outlook for the economy.

Globally, India ranks first as a country that believes that they will be out of the economic

recession in the next twelve months.

Amongst the 52 countries that participated in the survey, 14 saw a consumer confidence

index of 100 points or higher, nine of which hail from Asia Pacific This is an increase

compared to 11 countries who hit the 100+ index mark one year ago. Confidence Index

provides a single indicator of consumer sentiment towards the current economic situation as

well as intentions and expectations for the future. Levels above a baseline of 100 indicate

degrees of optimism.

Optimism reigns high in India

Increasing confidence levels in the countrys economy translates into optimism for Indians, at

least when it comes to their job prospects in the next twelve months. Indians are globally the

most optimistic on this count. Nine out of ten Indians (90%) are optimistic about their job

prospects in the next twelve months.


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This is a percentage point lower than in the last quarter, but India tops the list of countries

who think that their job prospects are excellent or good in the next twelve months. The

percentage of Indians who think that their job prospects are excellent has g one up from 29

to 31 percent compared to the previous quarter. Nearly six out of ten Indians (59 %) consider

their job prospects good in the next twelve months. Norway (83%) and Singapore (79%)

are the next most optimistic nations on job prospects in the next twelve month.

Not only job prospects, Indians are also optimistic about the state of their personal finances

in the next twelve months. More than eight out of ten Indians (84%) are optimistic about their

personal finances in the next twelve months, which is also the highest ranking globally. This

has gone up by a percentage point compared to the third quarter of 2010. Eighteen percent

Indians consider their state of personal finances excellent and 66 percent consider it good

in the next twelve months. Indonesia (81%) and Norway (79%) are the second and thirdmost optimistic nations respectively in terms of the state of their personal finances in the

next twelve months.

Despite the overall economic confidence over the economy and job market, Indians

tightened their purse strings slightly in the fourth quarter of 2010. Of the Indians surveyed,

56 percent believed that it was a good time to buy the things that they felt they wanted but in

the previous quarter it was higher at 59%.

Global economic con ditions are acting as a deterrent to the spending habits of Indians. We

saw a resurgence in spends in the previous two quarters but the last quarter of 2010 shows

a decline in spending intentions. Under the current scenario, marketers will have to try

harder to get the consumer to reflect the confidence that they show in their job prospects

and state of personal finances in their spending habits.

What do Indians do with their spare cash?

Indians have always put their spare cash into Savings and the priority remains the same, 65

percent Indians say they will put their spare cash into savings after meeting their essential

living expenses. The percentage of Indians putting their discretionary income into savings

remains the same as in the last quarter. India ranks fourth globally for a country that puts its

spare cash into savings, behind Thailand (73%), Indonesia (72%), and Hong Kong (66%).

After saving, Indians like to invest their spare cash in the stock market or in mutual funds .

However, in the fourth quarter of 2010, the percentage of Indians who invest in stock market

related schemes has gone down by three percent to 45 compared to the last leg of the


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survey. India ranks third globally for a country that puts spare cash into shares and stocks,

behind Hong Kong (56%) and China (51%).

There is an overall decline in Indian discretionary spends, but the highest decline is seen in

Indians putting spare cash into New clothes , which has gone down eight percent to 31compared to the last round of the survey. Another item on the spare cash list that has taken

a big hit is the Out Of Home Entertainment , which has gone down by six percentage points

to 23. Paying off debt/ credit cards/ loans (29%) and Retirement Funds (24%) has

experienced a five point drop. India ranks third globally in putting spare cash into retirement

funds, behind China and Czech Republic (both 30%).

A four percent drop is seen in the number of Indians who put their spare cash into New

technology products and it has gone down to 38 percent. But still, Indians say spending on

technology will be their third preference when it comes to spare cash utilization. But on the

global ranking India ranks second in a population that plans to spend on new technology

products, China leads with 41 percent votes.

Holidays/ vacations (35%) and Home improvements/ decorating (34%) , though rank fourth

and fifth respectively on the spare cash utilization list, but has dropped by three percent

when compared to survey in the previous quarter.

The percentage of Indians who have no spare cash has gone up by one percent to four. Thedecline in spending is a cause of worry to some extent. Indians are weighing their options

against a global backdrop of a recessionary mindset, so even though they are the most

confident global consumers, Indians are still wary of going out and spending.

Major Concerns for Indians

Over the next six months Indians are most concerned about Increasing food prices , fifteen

percent Indians consider it their biggest concern and India ranks fourth globally in its concern

for increasing food prices. In fact concern levels around increasing food prices have

remained the same for both the third and fourth quarter. China tops in its concern over

increasing food prices with 19 percent of consumers in China voting it as the biggest

concern over the next six months.

Following a similar trend as in the previous quarter, Work/ life balance (12%) and Job

Security (10%) are the second and third biggest concerns for Indians in the next six months.


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Other concerns for Indians are Childrens education and/or welfare (8%) and Parents

welfare and happiness (8% - 3 rd highest globally) . Childrens education and/or welfare has

moved up the concern list and concern over parents welfare and happiness has increased

by two percentage points. Concerns surrounding Terrorism at seven percent (4 th highest

globally) has increased for Indians.

At 6 percent Health, Economy, and Global Warming are the next set of concerns for Indians.

India ranks second in its concern for global warming. Increasing utility bills (electricity, gas,

heating, etc) 5 percent and increasing fuel prices (4%) are some of the other concerns for

Indians.

Increasing food and fuel prices remain a big concern for Indians and have a significant

bearing on their lifestyles as they try and balance rising costs by cutting down other living

expenses

Saving on household expenses?

Compared to this time last year, more than seven out of ten Indians (72%) have changed

their spending habits to save on household expenses; this is two percentage points higher

than in the third quarter.

More than half the Indians (51%) surveyed, now spend less on new clothes to cut down

expenses, however the percentage of Indians who plan to cut down buying new clothes has

gone down by seven percent compared to the previous quarter. 50 percent Indians try to

save on gas and electricity, compared to 56 percent in the previous round who said they

would cut down on gas and electricity to save on household expenses.

43 percent of the Indians surveyed say they will cut down on out of home entertainment, 41

percent on telephone expenses, 38 percent on holidays/ short breaks and 35 percent will

delay upgrading technology, e.g. PC, mobiles, etc. to save on household expenses.

There is a fair amount of correlation on items that Indians have decided to cut down

spending on to save on household expenses and the items that show a decline in

discretionary spends, like decline in spending on new clothes, out of home entertainment,

new technology products, all have taken a hit.

As per the survey, the top five activities that Indians say they will continue to cut down

expenses on even after economic conditions impro

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Project 4th Sem