Consumers Offer a Ray of Hope After Glum Economic Data

Mumbai: The rescue of economy may come down to the spending power of people like 26-year-old Avni Rambhiya.

A financial analyst, she recently received a pay rise, is eating out more often and has stopped bringing home-cooked meals to the office in a tiffin, the traditional Indian lunchbox.

"Our salary increases have been on an average 10 to 12 per cent...," the 26-year-old said. "I am left with some additional money in my hand even after saving, so I spend it in eating out more frequently, travelling, buying dresses."

"Now four days a week I eat out either by ordering food or go out for dinner with friends. Even six months back I used to carry a tiffin to the office and eat out once in a quarter."

People like Rambhiya offer a glimmer of hope for the economy, which grew at a slower-than-expected annual rate of 7 per cent in the June quarter.

The economic data, released on Monday, showed a weakening services sector, consistent with a pattern of subdued consumption over the past two years, but some leading indicators have already begun to tell a different story.

From rising retail loans to a pick-up in movie ticket sales, there are early signs of a recovery in spending in Asia's third-largest economy.

"The headwinds of 2013 that pushed down consumer spending have turned positive now," said Siddhartha Sanyal, India economist at Barclays in Mumbai.

"Prices of commodities, interest rates, inflation are easing, growth sentiment which affects consumer behaviour is better, and the rupee is also relatively stable."

Consumers have a strong influence on the Indian economy, but their confidence has been undermined by two straight years of sub-5 per cent economic growth - far too slow to generate enough jobs for an ever-expanding workforce.

Economists say consumption is finally picking up, thanks to a plunge in oil prices, record low inflation and interest rate cuts totalling three quarters of a percentage point this year.

Now with festive season starting this month, with the first of a series of religious holidays, economists say the time is ripe for Indians to spend more freely.

India has no reliable indicator on retail sales because a lot of transactions are carried out in the black economy and are never reported to authorities, but retail loans - a proxy indicator - grew 15.3 per cent in June from a year earlier, outpacing overall credit growth of 12.8 per cent.

Production of consumer goods grew 6.6 per cent in the same month, the strongest growth since October 2012, according to official industrial production data.

A survey by the Reserve Bank of India (RBI) showed more than 87 per cent of consumers spent more in the June quarter than in the previous quarter and 86 per cent expected to spend more in the year ahead.

Adding to the optimism, the government is expected to announce this year salary hikes for more than 10 million state employees and pensioners.

Still, the early signs of a pick-up in consumption are restricted to the small, impulse purchases of daily life, from movie tickets and eating out to travelling and hair salons.

Households are still cautious about bigger purchases, such as expensive large home appliances and cars.

Makers of autos or refrigerators saw June quarter earnings fall 30.3 per cent from a year earlier, according to consumer discretionary data by Thomson Reuters.

By contrast, cinema operator PVR Ltd enjoyed its best-ever month in July with 7.5 million spectators. And to take advantage of increasing concession stands, it has for the first time hired corporate chefs to expand its menu offerings to items such as pasta, grilled chicken, and gourmet coffee.

"People are opening up their pocketbooks and enjoying more films and eating more," said PVR Cinemas chief executive Gautam Dutta.

"We're seeing a huge amount of hope when we measure people's sentiment."