project 4th sem
TRANSCRIPT
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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
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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 INDEX INDIA 2009
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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CONSUMER CONFIDENCE INDEX INDIA 2010
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