News / Economy

Plunging Currency, Consumption Slowdown Hamper India's Economy

The Indian rupee recently lost nearly 20 percent of its value, a move that could further slow growth in Asia’s third largest economy, September 2013.
The Indian rupee recently lost nearly 20 percent of its value, a move that could further slow growth in Asia’s third largest economy, September 2013.
Anjana Pasricha
As a plunging currency and a slowdown in consumption hamper India’s once vibrant economy, many industries are facing the prospect of plummeting profits. 

Usually at this time of the year, consumer companies look ahead to windfall profits. Starting in September, consumption increases because it is considered auspicious to buy new products such as cars and televisions for the main Hindu festival, Diwali, to be celebrated in November.    
    
But this year the mood in most corporate headquarters is pessimistic. The reason: the plunging rupee. India’s currency has lost nearly 20 percent of its value in recent months, pushing up costs for companies that rely on imports of raw materials. That is a large number ranging from electronics to automobiles.

Shantanu Dasgupta is vice president for corporate affairs and strategy at Whirlpool of India, which sells appliances such as washing machines and refrigerators. He says the depreciation of the rupee is a blow to their industry.  

“Considering that we have gone through a highly inflationary period for the last 18 or 24 months, the ability for any company in our industry to absorb these increases in input costs is limited or has vanished," said Dasgupta."So invariably it leads to an increase in consumer price finally.”

Prices of consumer goods are rising at a time when inflation and the collapsing rupee have already sent food and fuel prices spiraling. So consumers, already coping with higher monthly household bills, are cutting back on buying cars, televisions and refrigerators.
 
That is not good news for India, whose economy is highly reliant on domestic consumption.  The country weathered the 2008 financial crisis on the strength of high spending by a rising middle class. It became one of the bright spots in a weakening global economy for many investors and companies.
     
But the impressive eight percent growth rate during the boom years crashed to about half that in the April to June quarter of this year. Growth in private consumption hit a record low in the same period.  

Salary hikes have been lower. Bonuses in the festival season are likely to be less generous as many companies post their slowest growth in three years.   

As a result, the mood in India’s middle class has changed. Rahul Mane, a New Delhi resident with a young daughter, says he has no plans to buy any big items this festival season.  

“Two years ago, it was quite different," said Mane."Getting into a mall or spending, you did not have a second thought how you are going to manage. But now you know, every bit matters, so one is trying to save every drop... It’s pinching a lot. We’ve cut down a lot of things like moving around, going on small trips, even buying vegetables, fruits, we are moderating I would say. ”

Faced with a steeply higher bill for oil imports on account of the collapsing currency, the government has warned of further increases in gas and diesel prices and other austerity measures. This could worsen inflation and make a bigger dent in disposable incomes.

As a result, many fear that things will only get worse before they get better. Among them is Dasgupta of Whirlpool, who admits that this festive season is not going to be a “heady one.”  

“If you are going to withdraw subsidies on diesel and petrol, these are measures that are definitely good for fixing our economy, but are going to increase the cost of living thereby impacting our industry negatively, adversely," said Dasgupta."Hence, I don’t see any signs of immediate hockey stick or reversal of fortunes coming.”
 
The consumer slowdown is also contributing to an industrial slowdown. Many companies have put expansion plans on hold as their profits plummet and they post negative growth. Manufacturing output contracted in August for the first time in several years.  

D.K. Joshi is chief economist with Crisil in Mumbai and says this could mean the loss of jobs.

“Incomes have slowed down so demand slowdown is impacting.  Manufacturing has become less competitive," said Joshi."Indian manufacturers are going out and getting stuff produced outside India like in China. It is very difficult to turn this sector around.”

Policymakers are trying to sound a reassuring note, saying the economy may be down, but it is not out. However analysts say the word “austerity” is likely to be heard much more frequently in India in the months to come instead of the word “boom”, associated not long ago with Asia’s third largest economy.

You May Like

Will Cuba Follow the Southeast Asia Model?

Decision to restore ties between US and Cuba has some debating whether it will lead to enhancement or regression of democracy for Communist island nation More

Kenyan Designer Finds Her Niche in Fashion Industry

‘Made in China’ fabrics underlie her success More

Report: CIA, Israel's Mossad Killed Senior Hezbollah Commander

The Washington Post story says Imad Mughniyah was killed instantly by a bomb "triggered remotely" from Tel Aviv by Mossad agents More

This forum has been closed.
Comment Sorting
Comments
     
by: Hovhannes from: Montevideo
September 10, 2013 6:40 PM
Unless India opens its economy for foreign investors, privatizes state companies and fights corruption, things will get worse, they will never improve.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Jefferson's Library Continues to Impress, 200 Years Lateri
X
Deborah Block
January 31, 2015 12:12 AM
Two hundred years after the U.S. Congress purchased a huge collection of books belonging to former President Thomas Jefferson, it remains one of America’s greatest literal treasures and has become the centerpiece of Washington’s Library of Congress. VOA’s Deborah Block reports.
Video

Video Jefferson's Library Continues to Impress, 200 Years Later

Two hundred years after the U.S. Congress purchased a huge collection of books belonging to former President Thomas Jefferson, it remains one of America’s greatest literal treasures and has become the centerpiece of Washington’s Library of Congress. VOA’s Deborah Block reports.
Video

Video Egypt's Suez Canal Dreams Tempered by Continued Unrest

Egypt plans to expand the Suez Canal, raising hopes that the end of its economic crisis may be in sight. But some analysts say they expect the project may cost too much and take too long to make life better for everyday Egyptians. VOA's Heather Murdock reports.
Video

Video Threat of Creeping Lava Has Hawaiians on Edge

Residents of the small town of Pahoa on the Big Island of Hawaii face an advancing threat from the Kilauea volcano. Local residents are keeping a watchful eye on creeping lava. Mike O’Sullivan reports.
Video

Video Pro-Kremlin Youth Group Creatively Promotes 'Patriotic' Propaganda

As Russia's President Vladimir Putin faces international pressure over Ukraine and a failing economy, unofficial domestic groups are rallying to his support. One such youth organization, CET, or Network, uses creative multimedia to appeal to Russia's urban youth with patriotic propaganda. VOA's Daniel Schearf reports.
Video

Video Filmmakers Produce Hand-Painted Documentary on Van Gogh

The troubled life of the famous 19th century Dutch painter Vincent van Gogh has been told through many books and films, but never in the way a group of filmmakers now intends to do. "Loving Vincent " will be the first ever feature-length film made of animated hand-painted images, done in the style of the late artist. VOA’s George Putic reports.
Video

Video Issues or Ethnicity? Question Divides Nigeria

As Nigeria goes to the polls next month, many expect the two top presidential contenders to gain much of their support from constituencies organized along ethnic or religious lines. But are faith and regional blocs really what political power in Nigeria is about? Chris Stein reports.
Video

Video Rock-Consuming Organisms Alter Views of Life Processes

Scientists thought they knew much about how life works, until a discovery more than two decades ago challenged conventional beliefs. Scientists found that there are organisms that breathe rocks. And it is only recently that the scientific community is accepting that there are organisms that could get energy out of rocks. Correspondent Elizabeth Lee reports.
Video

Video Paris Attacks Highlight Global Weapons Black Market

As law enforcement officials piece together how the Paris and Belgian terror cells carried out their recent attacks, questions are being asked about how they obtained military grade assault weapons - which are illegal in the European Union. As VOA's Jeff Swicord reports, experts say there is a very active worldwide black market for these weapons, and criminals and terrorists are buying.
Video

Video Activists Accuse China of Targeting Religious Freedom

The U.S.-based Chinese religious rights group ChinaAid says 2014 was the worst year for religious freedom in China since the end of the Cultural Revolution. As Ye Fan reports, activists say Beijing has been tightening religious controls ever since Chinese leader Xi Jinping came to office. Hu Wei narrates.
Video

Video Theologians Cast Doubt on Morality of Drone Strikes

In 2006, stirred by photos of U.S. soldiers mistreating Iraqi prisoners, a group of American faith leaders and academics launched the National Religious Campaign Against Torture. It played an important role in getting Congress to investigate, and the president to ban, torture. VOA's Jerome Socolovsky reports.
Video

Video Former Sudan 'Lost Boy' Becomes Chess Master in NYC

In the mid-1980’s, thousands of Sudanese boys escaped the country's civil war by walking for weeks, then months and finally for more than a year, up to 1,500 kilometers across three countries. The so-called Lost Boys of the Sudan had little time for games. But one of them later mastered the game of chess, and now teaches it to children in the New York area. VOA’s Bernard Shusman in New York has his story.
Video

Video NASA Monitors Earth’s Vital Signs From Space

The U.S. space agency, NASA, is wrapping up its busiest 12-month period in more than a decade, with three missions launched in 2014 and two this month, one in early January and the fifth scheduled for January 29. As VOA’s Rosanne Skirble reports, the instruments being lifted into orbit are focused on Earth’s vital life support systems and how they are responding to a warmer planet.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8845
JPY
USD
117.71
GBP
USD
0.6643
CAD
USD
1.2669
INR
USD
62.019

Rates may not be current.