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

Video Miami Cubans Divided on New US Policy

While older, more conservative Cuban Americans have promoted anti-Castro political movement for years, younger generations say economically, it is time for change More

2014 Sees Dramatic Uptick in Boko Haram Abductions

Militants suspected in latest mass kidnapping of over 100 people in Gumsuri, Nigeria on Sunday More

Video Cuba Deal Is Major Victory for Pope

Role of Francis hailed throughout US, Latin America - though some Cuban-American Catholics have mixed feelings 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.
Sudan School Becomes Target of Aerial Attacksi
X
December 19, 2014 12:45 AM
The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Putin Says Russian Economy Will Emerge Stronger

Russian President Vladimir Putin has said his country's sinking economy will not only recover but also become stronger, despite falling oil prices and Western sanctions over Ukraine. VOA's Daniel Schearf reports.
Video

Video Detained Turkish Journalists Follow Teachings of US-Based Preacher

The Turkish government’s jailing of critical journalists has sparked international condemnation and is being seen as an effort to undermine the followers of an ailing Turkish preacher based in the United States. VOA religion reporter Jerome Socolovsky has more.
Video

Video ‘Anti-Islamization’ Marches Increase Tensions In Germany

Anti-immigrant rallies in Germany have been building in recent weeks, peaking Monday night in the city of Dresden where tens of thousands of people turned out to demonstrate against what they call the ‘Islamization’ of the West. Germany has offered asylum to more Syrian refugees than any other country, and this appears to have set off the protests. Henry Ridgwell reports from London.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.
Video

Video Refugees Living in Kenya Long for Peace in the Home Countries

Kenya is host to numerous refugees seeking safe haven from conflict. Immigrants from Somalia face challenges in their new lives in Kenya. Ahead of International Migrants Day (December 18) Lenny Ruvaga has more for VOA News from the Kenyan capital.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.