New Delhi’s Gandhi Nagar market is one of India’s largest garment wholesale hubs, jammed with inexpensive, ready- made garments for the aspirational but price-sensitive lower middle class. The vast array of kids’ party wear, elaborately-embellished jeans and other clothes draws traders from across north India, who stock up on merchandise to sell in small-town shops and rural bazaars.
Typically, the run-up to the annual Diwali festival is the market’s peak season, when the narrow lanes are so jammed with buyers hauling clothes it is difficult to move. But this year, traders complain, the festive shopping season has been gloomy, with sales falling precipitously as a deepening economic slowdown hurts ordinary Indians.
Hit by lay-offs, pay cuts and reduced earnings, anxious consumers are tightening their belts. “For common people, these are luxury items,” says Sahil Nangru, 26, whose small business makes children’s outfits, selling them wholesale for around Rs500 ($7) a set. “People do not have money in their hands these days. Businessmen do not have money to invest.”
Weak consumer demand is fuelling a vicious downward spiral. In recent weeks, Mr Nangru and his partner, Pradeep Chawla, have shut down two of their four small garment- making workshops, and laid off 25 workers. “For the last three or four months, we’ve had absolutely no work,” says Mr Chawla. “Now because of Diwali we’ve had some orders. But if we have no business, we have to let the workers go, it is natural.”
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The gloom at the market reflects the malaise in India’s economy, now under the spotlight after the hoopla of prime minister Narendra Modi’s security-focused re-election campaign — and his triumphant victory just six months ago
Not that long ago India was revelling in its status as the world’s fastest-growing large economy. It seemed on the cusp of its aspiration of growth rates of 9 to 10 per cent — the pace economists say is necessary to create sufficient jobs for the estimated 12m Indians entering the workforce each year.
But since the second quarter of 2018 — when gross domestic product grew at a brisk 8 per cent year on year, India’s economy has steadily lost steam. GDP growth sank to just 5 per cent in the three months to June 2019, its slowest pace in six years. And as the economy skids, India’s millions of self-employed, vulnerable contract workers and farmers have all taken a hit.
“People’s businesses have collapsed,” says Nidhi Varma, who runs a small shop in a Delhi mall, and has watched as other shops shut down around her in recent months. “People don’t have enough profit to pay rent.”
Before the election, Mr Modi’s government had brushed aside warnings of economic fragility, dismissing them as too pessimistic and politically motivated. But with the deepening economic distress impossible to ignore, debate is mounting over precisely what ails the economy, the root cause of the slowdown, and how long it will last.
New Delhi insists the difficulties are a cyclical blip, brought on by tumultuous international conditions. But many economists believe the slowdown is of India’s own making — the result of policy mis-steps, sluggish market-oriented reforms and Mr Modi’s failure to resolve problems in the financial system left by over exuberant lending during the previous Congress administration.
“Blaming it all on the outside is too easy,” Raghuram Rajan, former Reserve Bank of India governor, said in a recent lecture, his first on the state of the Indian economy since leaving the job in 2016. “India is poor. It has .alot of potential for growth on its own, without relying on the outside. Why aren’t we growing at 7 or 8 per cent?”
Private investment has been muted for nearly a decade since the global financial crisis. New Delhi has little fiscal firepower left for stimulus, with an annual public deficit — including the centre, states, and state-owned entities — estimated at nearly 10 per cent of GDP. Now, private consumption is faltering, as the public mood darkens, and easy consumer credit dries up after last year’s shock collapse of Infrastructure Leasing & Financial Services, a major finance company.
According to the most recent RBI consumer confidence survey, Indians’ optimism about their future prospects is ebbing away. Families have been living beyond their means, drawing down savings and taking loans, expecting better days ahead, government statistics show. From 2012 to 2018, household savings fell from 23.6 to 17.2 per cent of GDP. Household debt has risen sharply, though at 11 per cent of GDP it remains low by regional standards.
“There is a general environment of extreme risk aversion,” says Gagan Banga, vice-chairman of Indiabulls Housing Finance. “Today we have a situation where the business community in general is scared to invest, the consumer is scared to consume, and lenders are scared of lending both to business and consumers because they feel that the money will get stuck.”
India’s automotive industry — which accounts for around 40 per cent of manufacturing GDP — suffered a contraction in passenger and commercial vehicle sales of 23 per cent year on year from April to September. Sales of motorcycles and other two-wheelers — often a leading indicator of the strength of the rural economy — contracted 16 per cent. Other industries, from fast-moving consumer goods to aviation, are slowing.
