[Pen-l] India not immune to global economic crisis

[Louis Proyect <lnp3@xxxxxxxxx>]

Indians Trapped by Debt as Easy Money Dries Up

By Rama Lakshmi
Washington Post Foreign Service
Saturday, August 16, 2008; D01

NEW DELHI -- In the past two months, Ravinder Raina tossed and turned 
on many sleepless nights trying to re-do the math of his family's 
monthly expenses.

Rising mortgage payments, soaring inflation and fuel prices were 
beginning to put the squeeze on the spending spree he'd taken for 
granted for the past four years. So after painstaking discussions 
with his wife, he drew up a list of expenses to cut. The family would 
stop buying famous-brand clothes. They would not window-shop if they 
did not need anything. They would use credit cards less and replace 
their gasoline-fueled car with a vehicle that uses cheaper natural gas.

The most difficult decision, he said, was to cut down on outings. 
"Weekends were for indulging our daughter, spending time with her and 
enjoying. Watching a movie, shopping and trying out a different 
restaurant each time," said Raina, 44 and a manager of a company that 
owns upscale hotels and spas.

The past four years have brought India economic growth of seemingly 
unstoppable momentum, often 9 percent a year, helped along by big 
inflows of foreign investment. Rising incomes and low interest rates 
enabled many middle-class Indians to realize the dream of owning a 
home, even while still in their 30s.

But economists warned that the economy was overheating, producing 
inflation and speculative bubbles in real estate and the stock 
market. So government policymakers moved to cool things down by 
raising interest rates and tightening the rules for home loans. Taken 
along with the general global slowdown and spiraling fuel costs, the 
measures have had the intended effect.

On Wednesday, the government projected the growth rate would fall 
this year to 7.7 percent, compared with nearly 9 percent last year. 
Industrial output slipped to its lowest in six years, growing 5.4 
percent in June, compared with 8.9 percent in the same month last year.

Trapped in debt, many middle-class Indians are struggling to cope. 
Raina's monthly mortgage payment has gone up by 12 percent. "I have 
to cut corners now, or I may not be able to pay back my loan before 
retirement," he said. Payments on some loans have doubled since 2004, 
when interest rates were at a record low.

"The boom of the last four years mesmerized them to live beyond their 
means," said Deepak Raheja, a therapist who runs a support group 
called the Hope Foundation. "In the past ten weeks, I am getting five 
to six new patients every week with financial worries about 
mortgages, loan repayments and credit card bills. All in the age 
group of 25 to 40. They exhibit anxiety, helplessness and depression. 
Some even contemplate suicide."

A senior government economic official acknowledged that inflation, 
now at 12 percent, a 13-year high, has exceeded the tolerance level 
of many Indians. But he said that the government's moves are having 
the desired and ultimately positive effect.

"The monetary policy actions that have been taken during the past 12 
to 18 months, following the financial crises in the West, have 
dampened the overheated land markets," said Arvind Virmani, chief 
economic adviser in the government, in an e-mail. "Some effect on 
consumer credit and related purchases of durable goods is also to be 
expected. The 93 percent rise in oil prices has however made it 
extremely challenging to manage inflation and growth."

Marketing and retail brand strategist Harish Bijoor says that Indians 
are now buying, vacationing and dining out less. In Mumbai, the 
country's unofficial commercial capital, the frequency of dining out 
has dropped by a third in the past three months.

"The Indian middle class is now deferring purchase decisions because 
they are locked in the rising mortgage trap from multiple loans. They 
did not anticipate this cash crunch. They thought India's growth 
story would only go up, up and up," Bijoor said. "They are no longer 
eagerly replacing their television sets, washing machines, 
refrigerators and cars for newer models in the market."

In a bid to get rid of piling-up inventory, many stores are offering 
mega discounts with signs on their windows saying "Beat the Inflation."

The impact on working-class Indians has been more profound.

The downturn has put the brakes on Ramakant Mohanta's aspirations of 
social mobility. Eight years ago, Mohanta, 35, left his impoverished 
village in eastern India to become a driver in New Delhi. Living in a 
slum, he worked hard to send his seven-year-old son to a good school 
in the city.

This summer, he pulled his son out of the school and sent his family 
back to the village.

"The price rise hit us very hard. I lost all the progress I made in 
the last few years. I could not afford my son's school fee any more," 
said Mohanta, a tall, rail-thin man. "I dreamt of a different life 
for my son, but that dream has broken into pieces."

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