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

Photogallery South Africa Bans Travelers From Ebola-stricken Countries

South Africans returning from affected West African countries will be thoroughly screened, required to fill out medical questionnaire, health minister says More

Multimedia UN Launches ‘Biggest Aid Operation in 30 Years’ in Iraq

Move aims to help thousands of Iraqi religious minorities who fled their homes as Kurdish, Iraqi government forces battle Sunni insurgents More

Video African Media Tries to Educate Public About Ebola

IT specialists, together with radio and TV reporters, are battling misinformation and prejudice about disease 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.
Gaza Conflict, Hamas Popularity Challenge Abbasi
X
Scott Stearns
August 21, 2014 9:20 PM
The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Gaza Conflict, Hamas Popularity Challenge Abbas

The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Nigeria's 'Nollywood' Movie Industry Rolls in High Gear

Twenty years after its birth in a video shop in Lagos, Nigeria's "Nollywood" is one of the most prolific film industries on earth. Despite low budgets and whirlwind production schedules, Nigerian films are wildly popular in Africa and industry professionals say they hope, in the future, their films will be as great in quality as they are in quantity. Heather Murdock has more for VOA from Lagos.
Video

Video UN Launches 'Biggest Aid Operation in 30 Years' in Iraq

The United Nations has launched what it describes as one of the biggest aid operations in 30 years in northern Iraq, as hundreds of thousands of refugees flee the extremist Sunni militant group calling itself the Islamic State. As Kurdish and Iraqi forces battle the Sunni insurgents, the fighting has forced more people to flee their homes. Kurdish authorities say the international community must act now to avert a humanitarian catastrophe. Henry Ridgwell reports for VOA from London.
Video

Video Cambodian American Hip Hop Artist Sings of Personal Struggles

A growing underground movement of Cambodian American hip hop artists is rapping about the struggles of living in urban America. Most, if not all of them, are refugees or children of refugees who came to the United States from Cambodia to escape the Khmer Rouge genocide of the 1970s. Through their music, the artists hope to give voice to immigrants who have been struggling quietly for years. Elizabeth Lee reports from Long Beach, California.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls for Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid

World Currencies

EUR
USD
0.7492
JPY
USD
102.27
GBP
USD
0.5960
CAD
USD
1.0950
INR
USD
61.300

Rates may not be current.