Q: We have been seeing recovery in the real economy, you have seen volume growth, you have seen auto sales really pick up, we have seen the festive season come in  and we have seen sharp declines over the past three months, this is just a 1.9% uptick- why is it such a low consumer confidence when you have seen such a positive uptick in volumes over the past couple of months?
A: The Consumer Confidence Index is actually a composite of 30 variables and only 1 or 2 of which are related to direct spending. So when we track spending over time and ask Indian consumers about their intention to spend on basic necessities as well as durables, we actually have seen an uptick in that in June and July of this year. In case of basic necessities we have seen an uptick since June with a slight decrease in October and in case of durables we have seen an increase since July.

Compiling and calculating the index we look at all these different variables and we develop co-relations to see which are the closest in terms of their impact on sentiment; spending is one of them but there are many other concerns that people have about their nations overall economy, about peoples household income, about their job security which also contribute to the index.

So indeed spending patterns are up, reported intentions to spend are up but there are many other variables we have to consider as well, when you consider sentiment

Q: Consumer spending and consumer confidence are two different things?
A: Yes.

Q: You must have dissected the economy in terms of urban and rural––which sector is showing more confidence and which one is not?
A: We have seen interesting pattern and I think this driven partly of the fact that we have just gone through a festival season. We typically see divergent patterns in tier I, tier II and tier III cities. We cover 15 cities and break them up that way. Interestingly, we see a convergence this time in the month of September and October and we have seen it beginning to converge since probably July in terms of spending on durables. That is most notable and specific correlation that we have seen. I think that is probably driven by the festival season.

Q: I think it is natural in India that this Diwali tival being so important that it does not spark a lot of buying. So would you say that October is the errant month and you will have to remove that festival factor. Therefore, consumer confidence is not as good as this index the October reading makes it out to be?
A: Yes right and that is why I don’t want to say its reversal. We have to consider the larger context in which we are reading these numbers. So August, September and October all of those we should consider in those context and we should wait until we see what comes out in November and December.

Q: Consumer Price Index is going higher and inflation is going to be a bit of concern. Do you sense that that is going to eat into discretionary spending? And how do you see the trend really panning out if you had to make a prognosis till the end of this fiscal year?
A: I have two points to make about that. We do track Indian consumers’ perception of inflation and we have seen a significant decrease in optimism over inflation. In other words, we interpret that as people believe prices will continue to go up, that is very significant over the past two months. When I said earlier we correlate variables to the overall sentiment, we look at how well they track each other. Inflation actually has a very low correlation to overall sentiment. So while people are concerned about inflation, we don’t believe it’s going to impact the overall sentiment.