India’s Spending Spree Slows As Debt Problems Become More Widespread (#GotBitcoin?)
With the government strapped for cash and banks struggling, Indians are buying less. India’s Spending Spree Slows As Debt Problems Become More Widespread (#GotBitcoin?)
India’s debt problems have spread to consumers, gumming up the most-important piston propelling Asia’s third-largest economy and dimming its chances of snapping out of a slowdown.
India’s gross-domestic-product growth has slowed to a five-year low and is expected to head lower. Its strapped central government can’t spend to help, and banks are struggling and won’t lend much. Now consumers, whose spending makes up more than 65% of India’s economic activity, are turning more stingy. The government is scheduled Friday to announce GDP growth for the three months ended June.
With wage growth slipping and joblessness rising, the sales of everything from condominiums and cars to some soaps and snacks have taken a hit this year as the average Indian consumer has grown cautious.
One recent morning, around 100 construction workers and handymen were loitering on a corner of a busy South Delhi neighborhood. Some had the tools of their trade on display—buckets full of paint brushes, bags full of tools or wires. The spot is a place where freelancers gather, hoping to get at least a day’s work.
A few years ago, 250 people would gather at the corner, with nearly all snapped up for work by midday. Contractors would offer them twice the regular wages to help on projects across the city.
Today, those who remain say they are lucky if they get 10 days of work in a month. They have cut back on spending. Lakchand Ahirwat, 54 years old, is making a third of what he used to and is sending much less money home to his family in a village in Uttar Pradesh. He has had to tighten his belt, buying less wheat for his simple daily meal and ending luxuries like bidi cigarettes, biscuits and even bars of soap.
“I bathe with clothing detergent now,” he said as his fellow handymen nodded nearby.
Even at this micro level, India’s great spending spree seems to be stuck. That could be bad news for global brands including Walmart Inc., Amazon.com Inc., Starbucks Corp. and IKEA Group, which are all making big bets on India.
Indian lenders have accumulated one of the world’s biggest piles of bad debt in the past decade as small and large companies borrowed for all kinds of projects that were never finished or failed to find the demand they expected. They have been selling assets and lending less to pare down the problem.
That lull in lending has led to more problems as companies struggle to raise money to expand, families can’t get home loans and consumers are unable to finance their purchases.
The debt problem has trickled down, first hitting infrastructure and real-estate development, then truck and car sales, and finally scooter and motorcycle sales.
In the past four months, passenger car sales have plunged 21% compared with a year earlier while two-wheeler sales are down 13%. That’s the deepest plunge in decades.
Even some of the most basic consumer goods have been hit by the decline in wage and employment growth. In the first half of this year, sales of bars of soap, toothpaste and biscuits have all fallen or slowed significantly compared with a year earlier, according to data company Nielsen . The downturn has been even more sharp in rural areas and for products that cost less than 10 rupees, or around 14 cents, said Sunil Khiani, an analyst at Nielsen South Asia.
“The disposable incomes are under threat,” he said. “Consumers are really stressed, and that is reflected in their buying.”
The debt problems of India’s biggest banks, shadown banks and companies are rippling through rural India because millions of farmers also work part time in construction. The dip in construction means they are sending less money home or coming home and hurting wages there, a report released last week from HSBC said.
“Rural wages have been falling, and rural unemployment has been rising,” the report said. “All of this has pulled down consumption growth.”
The day laborers of New Delhi concur.
Ajay Kumar Yadav, 32, is struggling to pay off a loan he took out in better times. He can return home only twice a year compared with six times a year before. He says he would consider moving back to his village in the state of Bihar, but wages there have been slashed in half to 50 rupees a day.
He had to take one of his two children out of school in his village, and the one going to school has just one school uniform, which his wife has to wash almost every day.
“Now it’s too difficult to buy two uniforms,” he said.
Auto and confectionery makers have warned of thousands of layoffs unless the government does something to help them. Hindustan Unilever has lowered the prices of some of its best-selling soaps.
The government unveiled a package of confidence and economy bolstering measures last week, which included steps to lower lending rates. It also included ways to lower the cost of car ownership.
Spending on new vehicles will remain subdued until the spigots of lending are reopened, since 30% of car purchases and 80% of motorcycle purchases depend on loans, said Paul Blokland, director of Segment Y Automotive Intelligence.
“The access to finance has to improve” for sales to rebound, he said. “Every sector has been smarting.” India’s Spending Spree Slows,India’s Spending Spree Slows,India’s Spending Spree Slows