Bad news is piling up for India’s economy, with exports slumping, car sales tumbling and economists cutting growth forecasts amid job losses as the global financial downturn takes hold.
Until recently the country was confidently asserting that its mainly inward-looking economy and vast domestic market of 1.1 billion people would allow it to ride out turmoil stemming from the US-bred subprime crisis.
But Asia’s third-largest economy has joined the ranks of the wounded, with the odds of it emerging comparatively unscathed significantly reduced as companies worry over their earnings.
“What began as a warning breeze spreading some chill in financial circles is now a full-fledged storm battering the real economy,” said T.N. Ninan, editor of the financial daily the Business Standard.
And while this year will be difficult, analysts say next year looks worse.
A “larger-than-expected [credit] shock to the financial sector over the past couple of months and its knock-on effects on both domestic and external demand are responsible,” Goldman Sachs economist Tushar Poddar said.
Goldman Sachs this week cut its growth forecast for this fiscal year to March next year to 6.7 percent — among the lowest so far — and said it expected the economy to expand by just 5.8 percent next year.
Although strong by current Western standards, such growth is far shy of the double-digit levels economists say is needed to rescue hundreds of millions of Indians from poverty.
India’s economy has grown by at least 9 percent for the past three years but this week has seen a slew of ominous numbers.
Domestic car sales slumped by 6.6 percent last month, the fastest decline in more than three years, as tough loan conditions amid a worldwide credit crunch crippled consumers’ borrowing prospects.
Factory output slowed to its lowest level in three-and-a-half years last month, while in the same month India’s exports fell 15 percent — the first contraction since 2003.
Key export segments such as textiles, clothing and jewelry “are already reeling,” industry body Assocham said.
Other indicators show airline passenger numbers are expected to fall this year — the first drop since 2001. The sector, one of the most vibrant symbols of India’s economic progress, is returning leased planes and deferring the purchase of new ones.
Corporate profits are down by an average 35 percent, while layoffs are taking place in sectors ranging from textiles to real estate. Hotels are reporting a near 20 percent drop in occupancy.
“The economy is fast decelerating,” said Deepak Lalwani, India director of Astaire and Partners, based in London.
The rupee has also weakened sharply as foreign investors have fled, pushing down stocks by more than 50 percent and the currency down 17 percent against the dollar.
Some US$850 billion has been wiped off the stock market this year.
The central bank has been cutting interest rates but has been wary about inflation, stubbornly near 11 percent.
Prime Minister Manmohan Singh, who has forecast growth of seven to 7.5 percent this year, has vowed “all possible support” to shore up the economy.
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