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Few sparklers in the offing

Chances are that you would not be really splurging this Diwali with less money in your pockets, as slower income growth and a free-falling rupee will dampen the spirit of this festive season.

india Updated: Sep 04, 2013 03:13 IST
Hindustan Times

Chances are that you would not be really splurging this Diwali, as high prices and slower income growth make getting by harder for millions of Indians. Companies are seeking to cut corners to stay afloat, as rising input costs and costlier borrowing have forced firms to defer planned investments, offering fewer jobs and lower salary hikes.

This, along with persistently high prices, has hurt spending. Almost all everyday products and services have turned dearer in the last 12 months hitting family budgets hard. The same amount of money now buys fewer goods. Clothing, medical care, education, travelling, communication, recreation, eating out and most services too have become costlier over the past few months.

Besides, in the last three years, home loan EMIs 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.

The prospects worsen even more once the effects of the free-falling rupee are added to the equation. The sharp slide in the rupee is likely to knock up prices of almost everything along the value chain from farm to fork, effectively negating gains from a potentially bountiful summer harvest, which would have otherwise tempered food inflation. Estimates suggest that a sustained 10% rupee depreciation adds roughly 1% point to headline wholesale price inflation.

India imports about 75% of its crude oil requirements, and higher prices of the commodity usually reflect in higher retail transport and cooking fuel costs. As the cost of ferrying goods, including food items, goes up, overall prices will also rise.

It’s not just soaring fuel costs that will push food prices up. A weak rupee will raise prices for most manufactured and imported goods. This will again affect families’ monthly grocery budgets, since India is a net importer of items such as pulses and edible oil.

The sharply depreciating rupee will also likely force a change in holiday plans. Expensive crude oil prices have pushed jet fuel costs to a record high and a sharp hike in air fares are expected, which would upset the travel budgets of those who usually plan an autumn vacation timed around the festival season.

The fact that automobile sales continue to contract for successive months on end supports the view that the erosion in purchasing power, on account of persistently high inflation and interest rates, is denting discretionary spending. By all accounts, most consumers could be staring at a sombre Diwali with less in their pockets to fund their aspirations.

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