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NEW DELHI: Bad news is piling up for India's economy with exports slumping, car sales tumbling and economists cutting growth forecasts amid job losses as the global financial downturn takes hold.
Until recently the country was confidently asserting that its mainly inward-looking economy and vast domestic market of 1.1 billion people would allow it to ride out turmoil stemming from the US-bred subprime crisis.
But Asia's third-largest economy has joined the ranks of the wounded, with the odds of it emerging comparatively unscathed now significantly reduced as companies worry over their earnings.
"What began as a warning breeze spreading some chill in financial circles is now a full-fledged storm battering the real economy," said T.N. Ninan, editor of the financial daily the Business Standard.
And while this year will be difficult, analysts say 2009 looks worse.
"The larger-than-expected (credit) shock to the financial sector over the past couple of months and its knock-on effects on both domestic and external demand are responsible," said Goldman Sachs economist Tushar Poddar.
Goldman Sachs this week cut its growth forecast for this fiscal year to March 2009 to 6.7 per cent - among the lowest so far - and said it expected the economy to expand by just 5.8 per cent next year.
Although strong by current Western standards, such growth is far shy of the double-digit levels economists say is needed to rescue hundreds of millions of Indians from poverty.
India's economy has grown by at least nine per cent for the past three years but this week has seen a slew of ominous numbers.
Domestic car sales slumped by 6.6 per cent in October, the fastest decline in more than three years, as tough loan conditions amid a worldwide credit crunch crippled consumers' borrowing prospects.
Factory output slowed to its lowest level in three-and-a-half years in October while in the same month, India's exports fell 15 per cent - the first contraction since 2003.
Key export segments such as textiles, clothing and jewellery "are already reeling," industry body Assocham said.
Other indicators show airline passenger numbers are expected to fall this year - the first drop since 2001. The sector, one of the most vibrant symbols of India's economic progress, is returning leased planes and deferring the purchase of new ones.
Corporate profits are down by an average 35 per cent while lay-offs are taking place in sectors ranging from textiles to real estate. Hotels are reporting a near 20 per cent drop in occupancy.
"The economy is fast decelerating," said Deepak Lalwani, India director of Astaire and Partners, based in London.
The rupee has also weakened sharply as foreign investors have fled, pushing down stocks by more than 50 per cent and the currency down 17 per cent against the dollar.
Some US$850 billion has been wiped off the stock market this year.
The central bank has been cutting interest rates but has been wary about inflation, stubbornly near 11 per cent.
Prime Minister Manmohan Singh, who has forecast growth of seven to 7.5 per cent this year, has vowed "all possible support" to shore up the economy.
But analysts say the government has little room to spend its way out of the downturn with a stimulus package similar to the US$586-billion scheme announced by China focusing on infrastructure and other projects.
India, whose combined federal and state deficits are expected to be over seven per cent of GDP this year - among the world's highest - will have to rely on already announced spending to jump-start its economy, analysts say.
The Congress-led government, which faces elections by next May, hiked spending sharply in a populist budget earlier this year that contained a loan bailout for poverty-hit farmers and tax perks for the middle class.
- AFP/yb
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