Brace for months of economic uncertainty, as the government’s macro-economic managers are struggling to find ways and means to turn around India’s economy in an uncertain global environment.
India’s economy grew 5.5% during April to June this year, marginally higher than the 5.3% recorded in the previous three months, national income data released on Friday showed.
The manufacturing sector grew 0.2% during quarter, confirming what most analysts had feared: the Reserve Bank of India’s (RBI’s) bitter pill of raising interest rates to cure inflation has not had the desired effect, and instead has had side effects on growth.
This is not good news for millions of Indians for whom getting by is getting harder.
The same amount of money now buys fewer goods. Clothing, medical care, education, travelling, communication, recreation, eating out and most services have turned dearer.
In the last three years, home loan EMIs or equated monthly installments have steadily gone up. Since they cannot be curtailed, family budgets are squeezed by cutting down on regular expenses — even on items such as clothes and consumer durables.
“I had taken a loan of R54 lakhs in 2006 to buy a house in Noida,” said Sudhir Verma, a marketing consultant. “I was comfortable with an EMI of R48,000 at that point in time.”
A couple of years later, the EMIs started rising, to the extent that there was period when EMIs were being raised by nearly R1,000 a month for a few months at stretch. This has pushed my EMIs to R64,000.”
Rising prices and sliding growth remain key worries for the government as well as the common man.
India’s consumer price inflation — a realistic cost-of-living index because it captures shop-end prices — rose 9.8% in July.
Surging prices have prompted people to cut down on expenses on non-essential items.
“We stay in a small one-room house in east Delhi for which we pay R3500 a month as rent. Another R8,000 a month I pay every month to a private financier for the R4.7 lakh I had borrowed to purchase the auto rickshaw. This leaves me with barely anything to spend on basic expenses such as food, clothing and children’s education expenses,” said Dharampal, an auto rickshaw driver, who migrated to Delhi 15-years ago from Bihar's Motihari district.
“The economic slowdown have changed the fortunes of my company almost overnight. Not too long ago, my 28,000 sq ft factory was producing 10,000 pieces leather garments per month; now the figure stands at 3000-4000 garments per month. Earlier, my employees were working overtime and even on Sundays, but now we shut the shop-floor at 6 pm. What's more, I have had to take the very difficult decision of retrenching 200 of my employees from a pool of 400,” said Gurgaon-based exporter requesting not be identified.
Mounting subsidy bills and a heavy debt burden may force the government to allow oil companies to raise petrol and diesel prices to at least partially offset their widening crude oil import bill hit by a weak rupee.
High fuel prices, however, will have a cascading effect hitting the family budget even harder.
Experts called for steps to boost income and investment.
“The growth slowdown reflects a sharp decline in investment and the government should take measures to control the fiscal deficit and lay the basis for boosting investment demand in the coming months," said Rajiv Kumar, secretary general, FICCI.