By Karishma Vaswani

IT'S festival time in India. Diwali, the Hindu New Year, is usually accompanied by big sales and special offers from most of the country's leading retailers. But as the downturn in the West lands on India's shores, many shops say Indian consumers just aren't parting with their cash so easily.

The days leading up to Diwali are usually the most auspicious time of the year to splash out on a new piece of jewellery, a new phone or even a new car.

But this year, the mood in Mumbai's usually bustling jewellery district, Zaveri Bazar, is decidedly glum.

Ms Rina Jashan was shopping for her wedding jewellery with her mother and, as they checked out delicate bejewelled pieces, she spoke to me about the change in spending patterns amongst Indians this year.

"It's a huge shift - in just a few months," said Ms Jashan, 24. "Earlier this year, my elder sister got married. At that time, we spent a lot of money, without thinking about it. Funds weren't a problem. But now because of the decline in the stock markets, and uncertainty about the future, my parents have to be careful."

That cautiousness is affecting the sales of jewellery retailers in India. At Bherumal And Sons diamond store in Mumbai, sales are down 30 per cent.

Owner Ramesh Bolooth said: "This time last year, my shop was full, you couldn't find a seat.

Now we get a few people walking in every day, and that too only to look. A lot of the people who were our regular buyers also used to invest in the stock markets. And since that's gone for a toss, my business has also been affected. It's very depressing."

Many Indian professionals have put their savings into the stock market and into mutual funds over the last few years, tempted by the spectacular returns they saw.

One such investor is software developer Sony Bhatia. Standing outside the Bombay Stock Exchange, he was staring up at the big flashing screens outside, clearly dismayed by the plethora of red arrows pointing down.

"How could this happen?" asked Mr Bhatia, 34. "Just three months ago I put in a huge amount of money. Everyone said this is the bottom, now the markets can only go up. Now I've lost over half of that. I thought I could sell my shares this Diwali and make a nice little profit. There's no hope of that now."

That hopelessness is spreading to other sectors too. Some of the worst hit are car dealers, as customers are wary of the impact of the credit crunch, on their finances and banks tighten up on financing schemes.

"I have never seen it so bad in the last 10 years," says Mr Girish Vazirani, managing director of JMD Auto, a car dealership on the outskirts of Mumbai. "We were prepared for a slow Diwali, but not to this scale. There's no demand, people aren't interested in buying. The market sentiment is so bad; plus every day you're seeing bad news on television and in the newspapers. Consumers are psychologically turned off from spending."

Looks like the theory that India would largely escape the global credit crunch since so much of its economy is powered by domestic consumption, is not holding up any longer. In fact, with a seismic shift in the attitude towards spending amongst Indian middle classes, there's a real fear growing here that growth rates could seriously be at risk.