From Underwear to Cars, India’s Economy Is Fraying
The country once had the world’s fastest-growing economy, but it has been battered by global and domestic forces. India’s troubles are a warning sign for other developing countries.
By Vindu Goel
Sep 21 2019
TIRUPUR, India — When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.
Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.
By that measure, India is in a serious slump.
“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.
It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.
Families are even skimping on the 7-cent packets of Parle biscuits that are a staple of India’s morning milk and tea. They are turning instead to even cheaper snacks made by local food vendors, according to Mayank Shah, a Parle executive. Biscuit sales are down about 8 percent, he said, and if current trends continue, the company may cut as many as 10,000 jobs.
Further darkening India’s outlook is the global economic slowdown, the recent spike in oil prices and the impact of Mr. Trump’s trade battles — including one with India.
On Friday, the Indian government, which spent months playing down evidence of a slowdown, finally acknowledged the depth of the problem, announcing a surprise cut in income taxes for all companies and additional incentives for manufacturers.
And this weekend, Prime Minister Narendra Modi is traveling to Houston to meet with Mr. Trump and try to resolve some of their trade disputes.
Until last year, India, with a population of 1.3 billion people, was the world’s fastest-growing large economy, routinely clocking growth of 8 percent or more. Now the government pegs the country’s growth at 5 percent. And the layoff notices are piling up, with unemployment at 8.4 percent and rising, according to the Center for Monitoring Indian Economy.
India’s reversal of fortunes, partly driven by domestic problems like neglected farmers, is ominous for other developing countries in Asia, Africa and Latin America that are trying to navigate both the weakening global economy and Mr. Trump’s fusillade of trade conflicts.
“India is potentially a bellwether,” said Per Hammarlund, the chief emerging markets strategist at SEB, a Swedish bank. “It’s a sign of the global economic trend right now: Growth has slowed further this year than last year.”
As skittish global investors have flocked to the safety of the dollar, India’s rupee and other emerging-market currencies have plunged in value. That has made vital imports of energy, electronics and factory equipment more expensive. Last weekend’s attack on two Saudi Arabia’s oil facilities, which sent the global price of oil soaring, underscored just how vulnerable India and other developing countries are to external factors beyond their control.
Like China and Indonesia, India is grappling with the fallout from years of excessive lending encouraged by the state. In India’s case, the overhang of bad bank loans, coupled with recent defaults by nonbank financial firms, has curbed lending to consumers and businesses.
Policy decisions by India’s central and state governments have worsened the country’s downturn, according to economists and business leaders.
Auto manufacturers, for example, were hit by a triple whammy: New safety and emissions standards increased the cost of vehicles, nine states raised taxes on car sales, and the banks and finance companies that fund dealers and 80 percent of consumer car purchases were paralyzed by the credit crunch.