From farms to factories, India’s facing a risky drop in demand

d474 rpr Economics, National and International, News From farms to factories, India’s facing a risky drop in demand

Economics National and International News

From farms to factories, India’s facing a risky drop in demand

Posted By d474rpr

Mumbai: Consumption was the great history of India. Its estimated population of 1.3 billion people is expected to shift from iron to iPhones, boosting global growth and encouraging investors such as Apple Inc. and Goldman Sachs Group Inc.

For a moment everything seemed smooth. Indians were the most reliable consumers in the world and the $ 2 trillion economy was the fastest growing market. Then, last November, Prime Minister Narendra Modi took most of his money, aggravating a slowdown that had begun earlier this year. The rise in world oil prices and the tightening of the Federal Reserve may also complicate the development of national policies.

“There are a number of uncertainties that cloud the short-term outlook of the Indian economy,” said Kaushik Das, Chief Economist of Mumbai at Deutsche Bank AG. “The risk of political error remains high”.


The Indians fell to the top of the Asian Consumer Confidence MasterCard index in the first half of 2017 and a report from the country’s central bank last week confirmed the gloomy outlook. About 27% of the Indians surveyed said that their incomes had fallen, pushing the general sentiment towards the “pessimistic zone”. Employment “was the main source of concern,” said the Reserve Bank of India.


Convincing Indians to consume first would require them to have a job. It will not be easy for Modi to do so. Employment in manufacturing is expected to decline by about 30% this year and wider surveys show that hiring prospects are near a 12-year low. There was an absolute decline in employment between March 2014 and 2016, “maybe for the first time in independent India,” Economic and Political Weekly said this month.


The job scenario is bleak because companies, blocked by bad debt and bad demand, do not build more factories. Projects valued at Rs512 billion ($ 7.8 billion) were completed between July and September, the lowest since Modi came to power in 2014, according to the Mumbai Information Center, Center for Monitoring Economy India. The value of new private sector investment proposals fell to its lowest level in 15 quarters and, in terms of absolute number of proposals, was the lowest in 13 years.


Some economists, such as Abhishek Gupta in Bloomberg Intelligence, argue that high real rates hamper private investment and increase unproductive assets in banks. This prevents loans, even to creditworthy clients, from maintaining credit growth at levels close to those observed in the 1980s. Stressed firms could derail the global recovery of investment for another two to three years, use only 40% of their capacity, according to India Ratings & Research, the local unit of Fitch Ratings.

In most economies, slower demand, stagnant lending and slower growth would encourage policymakers to announce a stimulus. The Indian authorities have little to do: inflation is accelerating as oil prices rise and the government already has the largest budget deficit in Asia.

According to analysts at Crisil Ltd, the local unit of S & P Global Ratings, investments are not expected to increase significantly until March 2018, private consumption will therefore be the main engine of growth. The first reports are encouraging: a private inquiry in September showed that manufacturing and services are recovering from the ban on cash and the introduction of a goods and services tax. Accelerated recruitment.

“The Indian private sector has regained its lost ground,” writes Aashna Dodhia, an economist at the IHS Markit, in a report of 5 October. Bloomberg

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