India’s emerging middle-class consumers, until a few years ago the engine of the world’s fastest-growing big economy, were faltering even before the coronavirus arrived.
The pandemic has all but knocked them out.
From autos to shampoo, sales that were already depressed have fallen even further. Economic activity has been slow to recover from one of the world’s tightest lockdowns, raising questions about whether the pullback could stunt growth for years after the immediate crisis.
“People have realized the fragility of their situations and acted accordingly,” said Vivek Kaul, an economics commentator and author of a book about the growing debt problem at Indian lenders. “I don’t think GDP growth will go back to 8%-9% anytime soon.”
Before the pandemic struck, India’s economy had been struggling, posting some of the most sluggish figures in a decade as gross domestic product growth slowed to 4.2% in the fiscal year through March, compared with above 8% three years earlier.
But there was significant hope consumers would begin reversing their growing debt burdens and regain confidence as the economy started rebounding. But the coronavirus pandemic—India now leads the world in new daily reported cases—has delivered an even bigger blow to spending than in other countries.
Shipments of smartphones in India tumbled 51% from a year earlier in the quarter that ended in June, according to Counterpoint Research. Globally, the decline during the same period was less than half that rate.
Bisheshwar Kewat was getting a new smartphone regularly on the growing income he was making as a taxi driver in New Delhi. This month he had to bring his broken phone in to be fixed instead as his business and money have dried up.
The 45-year-old also has been mending his own clothes, trying to move his family to a cheaper apartment and cutting back on spending on food and his favorite whisky.
“I had been doing well, and my financial situation was improving until the pandemic struck,” he said. “Now the future is unclear and my savings are disappearing.”
He’s far from the only one cutting back.
As the lockdown shut most of the country and Covid-19 fears and infections spread, India’s GDP may have shrunk more than 20% in the quarter ended June from a year earlier, some economists say. Sales of all kinds of goods, domestic and international alike, have gone from bad to worse—in many cases worse than anywhere else in Asia.
At the company that operates most McDonald’s franchises in India, sales plunged 75% last quarter, while global same-store sales at the fast-food chain fell 24%. Japan’s Suzuki Motor Corp. said sales tumbled 83% in India during the period, a much steeper fall than the 28% in Japan.
A Nielsen survey of post-Covid-19 consumption of basic consumer goods across Asia showed India with the biggest declines. Fast-moving consumer packaged-goods sales—shampoo and snacks, for example—dropped 8% in India in the first five months of this year, while they rose in China and Indonesia and fell 1% in Malaysia and Vietnam.
The sales volume of gold jewelry—the go-to purchase for middle-class families when they have a few extra rupees—plunged 74% in India last quarter, compared with 53% world-wide. The fall in India was so sharp it kept gold prices from rising higher on the back of global demand for the precious metal as a safe investment in tough times, the World Gold Council said.
Meanwhile, savings have increased, even as interest rates and growth decline, Reserve Bank of India data show, illustrating that even those who still have incomes are expecting an extended downturn.
Mobility data from Google show activity around retail and recreational locations in India remains 55% below the level seen before the coronavirus started to spread globally early this year. Most countries have started to recover in recent months. Activity in the U.S. is down 18%. In Brazil and Mexico—developing countries with surging numbers of cases like India—mobility around such locations is down 30% and 31%, respectively, according to the Google Mobility Report.
Indian consumers have been the main engine of growth for Asia’s third-largest economy, as well as the main target of billions of dollars in foreign investment.
The country could see more than 100 million people fall back into poverty, according to a study this year at the United Nations University World Institute for Development Economics Research. It calculated that between 80 million and 395 million more people could be thrust into extreme poverty world-wide if the global economy contracts between 5% and 20% this year. Nearly half of those additional poor could be Indian, according to the research.
Not long ago, Himanshu Sharma was living a far different life than that of his father, a farmer. As a 20-something employee of a manufacturer, he made enough to live well and send a lot of money home to the village. But with the pandemic, his bonus was canceled, and he is worried about his future. He cooks for himself now for the first time, and yet he is sending less money home than before.
“I am worried,” Mr. Sharma said. “I am worried about being laid off, and I might have to face more crises in the job in the future.”
India has announced multiple measures to try to bring confidence back, but with the government’s finances already strained before the pandemic, New Delhi has limited firepower.
The surging need for aid can be seen in rural areas, where there has been an increase of almost 20 million people, or 45%, applying for the government’s rural employment-guarantee program, which generally pays less than $3 a day.
In the current fiscal year ending next March, economists expect GDP to contract around 7%, the worst performance in more than 40 years. That is already one of the hardest economic hits in the world, but it could be even harsher if consumers remain spooked.
“I feel like you cannot rely on the consumer as much as you could in the past” to lift the economy, said Pranjul Bhandari chief India economist at HSBC. “You can’t expect them to spend the way they have spent in the past.”
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Mr. Kewat, the New Delhi taxi driver, says he is losing hope and worried it will affect even his daughters’ lives.
“If it continues like this, I am worried about their futures,” he said.
—Krishna Pokharel contributed to this article.
Write to Eric Bellman at [email protected]
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