High on confidence

But corporate results show no signs of demand revival

No country in the world is more optimistic about 2015 than India - at least according to Nielsen's Global Consumer Confidence Index in the quarter ended December 2014. This was the third quarter running that India emerged on top of the list. Indians, according to the Nielsen survey, are bullish on job prospects and feel this is a good time to buy and invest. India's index showed a moderate rise over the previous quarter, but a sizeable jump over the equivalent quarter a year earlier. Nevertheless, it would be hasty to conclude that the country is at the cusp of a huge demand upswing. There are other data that are at odds with that conclusion.

The Nielsen index is based on an online survey of urban consumers and, thus, leaves out the rural markets that have been soft for a while, thanks to inadequate monsoon rains during the kharif season over large parts of India. Earnings in the farm sector have been under pressure, and industries that are dependent on it - tractors, for instance - have felt the impact strongly. Hindustan Unilever, the country's largest producer of fast-moving consumer goods, reported volume growth of just four per cent in the quarter ended December 31, though the company said there were signs of a pickup in demand in urban as well as rural markets. Even some urban sectors are witnessing weakness in demand. Real estate developers, for instance, have reported poor sales in the last few months. The secondary market in the sector has more or less collapsed. It is true that car sales grew rapidly in November and December, after reporting a decline in October, but that was in anticipation of the rollback of a temporary concession on excise duty. This lack of a strong demand also showed in an analysis of the financial results of 290 companies for the quarter ended December that appeared last week in this newspaper. Their combined net sales fell 4.4 per cent year-on-year - the first such drop in eight quarters. And their combined net profit increased just 2.2 per cent in spite of the dramatic fall in commodity prices, signalling the loss of pricing power. If banks, financial services companies and exporters of information technology services are excluded from the list, the net sales would be 11 per cent down and the net profit only 4.8 per cent.

In spite of such poor numbers, the stock markets have risen sharply in anticipation of higher net earnings in the coming quarters. There is no denying the fact that with inflation down, the food and fuel bills of households have come down and so they have more disposable income. And rate cuts by the Reserve Bank of India, now that inflation is under control, could lead to higher purchases of consumer durables. The rise in the stock market, too, is likely to trigger a "wealth effect", which could result in higher consumer spending. But such a recovery could be tenuous without a sustained rise in investment and removal of infrastructure bottlenecks. Also, there is no sign of new jobs being created in large numbers.