The 5 Trillion Dollar Slowdown

 

It has just stopped raining. You step gingerly out of the hostel 15 minutes late for your 8 am class. On the way, you find a ₹500 note lying on the floor. You pick it up thinking you’ll donate it to the local charity, but instead, you cave in to temptation as soon as you cross KC and buy the latest thingamajig the shopkeeper has to sell.

The shopkeeper being an alcoholic uses the money to buy his alcohol for the day. The liquor shop owner takes the ₹500 and walks over to Canara mall and buys the ticket for the latest movie, featuring his favourite heroine. He also buys some atrociously priced popcorn and a highly caffeinated soft drink.

 

 

The cinema owner has to attend a wedding at the other end of the town, and he gives that same ₹500 note to a Manipal Auto-driver unwillingly, given that his driver is on leave.

What’s happened here? The initial ₹500 has been spent four times and has generated ₹2,000 worth of economic activity. The same wouldn’t have happened if you had taken the ₹500 and deposited it in the bank or just kept it in your pocket.

And this, in essence, is what is happening to the Indian Economy. People are spending less. Consumption is the contributor to close to 60% of the Indian Economy and any chink in this armour is bound to have an effect on the entire economy.

It is this spending that has been slowing down in India, since the beginning of 2019. For the January to March 2019 quarter, GDP growth slowed down to 5.8%. Looking at economic activity in the period April to June 2019, things don’t look like they’re getting better.

There are several ways to monitor the health of an economy and GDP for one is paramount. The Centre for Monitoring Indian Economy(CMIE) has laid down 15 Economic Indicators to show how well/ poorly the economy is doing. Here’s what a few of these indicators have to say.

  1. Domestic car sales: During April-June quarter car sales fell by 23.3% in comparison to the same period in 2018. This is the biggest contraction in quarterly sales since 2004. A slowdown in car sales negatively impacts everyone from tyre-manufacturers to steel manufacturers to steering manufacturers etc. At the same time, the vehicle loans growth has slowed down to 5.1%, the lowest it has been in five years.
  2. Your go-to biscuit and Maggi Manufacturers: The volume growth or the number packs sold, of Fast Moving Consumer Goods(FMCG) of companies, has slowed down over the last one year. If we look at Hindustan Unilever Ltd, the volume growth between April and June 2019 was at 5%. It was 12% during the same period last year. There are other examples, as well. Britannia was down to 6% against 13% last year. Indeed, this is worrying, given that people seem to be going slow on making everyday purchases.
  3. Investment projects completed: The investment projects completed fell by 48% in comparison to the last year. This is the highest fall since September 2004. The Real Estate industry has links with about 250 ancillary industries — bricks, cement, steel, furniture, electrical, paints etc. — and affects them all if there is a boom or gloom in the sector — a thorough battering.
  4. DeMo, GST and IL&FS: Domestic and Foreign Investors like to believe that the horses they back are stable for the long term, and that government policies don’t face constant meddling. However, the past three years have been those of reforms. Post demonetization, unemployment skyrocketed, and this had a domino effect on a lot of the brick and mortar industries of the country. With the shoddy implementation of GST, the retail sector faced immense pressure. To put the needle into the proverbial coffin when IL&FS defaulted on a 450 Cr. Payment on 27 August, just over a year ago it sent shockwaves throughout the Indian Economy. Negative impressions are the hardest to change.

 

 

  1. Not to forget the US-China trade wars: It’s almost like the United States feels left out if they don’t have a part to play when a country is doing well(or poorly). The reason a trade war between the world’s largest and to-be-largest matters to us Indians is that we live in a world where globalisation –interconnection is paramount. When the rupee and global crude prices fluctuate at the whims and fancies of the dollar, and reciprocator tariffs are enforced as a ‘tit-for-tat’ measure, global investors feel unsafe in investing in high-risk ventures such as the Indian Economy.

 

 

A dangerous caveat for things to come.

 

~ Written by Rahul Alvares for MTTN
Photography by Pruthvin Batham

 

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