SLOWDOWN GAINING SPEED

By | December 2, 2008

The terrorist attacks have made the chinks in the Indian economy jarringly visible. The Finance Minister who mouthed inane and utterly unbelievable optimistic quotes about the economy last week, now as the Home Minister, would probably get some home truths clear.

If some people had still nursed doubts that India was cocooned from the world recessionary pressures, would surely like to rethink their perceptions. The terror attacks have downed the sentiments to a new ebb and even economically, the tally of repercussions is starting to stack up.

In the aftermath of the terror attacks, India has been rated amongst the top 20 most dangerous places to visit, sharing the place alongside Iraq, Afghanistan, Pakistan, South Africa, Chechnya, Jamaica, Sudan, Colombia, Haiti, Eritrea, Democratic Republic of Congo, Liberia, Burundi, Nigeria, Zimbabwe, Lebanon. Touted to be the great rising Asian Tiger and constantly talked about in the same breath as China, this is a huge blow to the image, which would take a lot of repairing.

The immediate fallout is that the airline industry is expected to suffer a combined loss of Rs.200 crore in December and January with the passenger load feared to dip below 40% during the peak season. Tour operators and travel agents have already reported huge cancellations in their bookings for December and January. The hotel industry is expecting a 25-30% drop in its inbound tourists. As such the global slowdown had affected business and now with this also adding on to the woes, the cup seems to be overflowing.

This apart, India is also showing signs of a serious slowdown. Oil prices have come down below $50 per barrel and despite the fall in prices, sales of oil products, after a gap of 17 months has reported a drop in October, which is like an “official” confirmation of the slowdown. Sale of industrial fuel and diesel has dropped 1.7% in October. When prices of an essential commodity is down and yet demand falls, surely this tantamounts to a slowdown, right?

The automobile sector, which is the wheel of the economy, also seems to be turning at a very slow speed. Sales of cars and 2-wheelers dropped 20-40% in November. Maruti, Tata Motors and M&M have reported a drop in sales and so have two-wheeler majors like TVS, Bajaj Auto. Only Hero Honda bucked the trend and showed a positive.

The Indian realty industry, which was booming like never before has hit the ground with a resounding crash and the casualties are eking their way out from underneath. With sales not picking up at all and despite the realty companies having taken all measures to boost sales, no one seems to be buying. And for the realty companies, it is a question of survival and if they have to survive, they have to reduce costs. And that brings us to the biggest casualty of this fall in the sector – the employees. Huge job losses and an almost 50% drop in paychecks is what awaits those employed in this sector.

This is sure to affect many industries and job losses are bound to follow and when there is threat to job security, naturally, people cut down on spending and demand all over drops. This cycle has been set in motion and would continue till the world economies do not emerge out of this recessionary cycle. Actually recession is in but what we have to see is that it does not lead to depression, something which Bernanke says would never happen now.

Well, there are a lot of things which Bernanke and our politicians say and do. But their words, sounding hollow and not the least bit reassuring, cannot stop the ball of slowdown which is fast gaining speed.

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