It’s not just Indians who are not buying enough. India’s exports have also fallen by 1.63% in October, the sixth successive month of such contraction, as orders dry out from Europe hit by sovereign debt worries and a wobbly political situation. Shrinking shipment orders have implied that exporters haven’t been able reap the benefits of a weakening rupee that had slid to record lows. A persistent fall in exporters’ incomes isn’t good news for millions of Indians whose livelihood depends on small factories peppered across the length and breadth of the country. This has hurt spending, partly explaining why people aren’t really splurging this Diwali, as high prices and slower income growth make getting by harder for hundreds of families.
For finance minister P Chidambaram and his team of financial administrators, the latest set of data adds to an array of problems, graver than the lukewarm Diwali sales. Policy-makers at New Delhi’s North Block and Mumbai’s Mint Street have to negotiate through a maze of thorny issues. The RBI has so far withstood mounting pressure from the government and industry bodies to cut interest rates. The central bank has warned that the Indian consumer is set to feel the pinch of high prices well into next year, even as it took the knife to its economic growth forecast. But with alarming signs of a widening stress on the government’s fiscal position, it’s critical to nudge companies to spin jobs and income. Bringing down the cost of capital and slashing borrowing costs could well be a prudent starting point to kick-start investment.