Is India in midst of Economic Slowdown?
As Shaktikanta Das (Governor of RBI) clearly stated in his statement, we are in midst of a cyclic slowdown and will have a direct/indirect impact on your personal finance. The sectors including manufacturing, hotels trade, construction, agriculture are amongst the worst hit.
Here are some facts to elaborate it.
Lack of Support from NBFC's, higher GST rates, inappropriate implementation of unified tax-system, BS VI norms from govt., rising fuel prices and new e-vehicle policies are amongst the primary causes for a general decline in consumer spending behavior.
Some other factors that influence slowdown are:
- A bounce back from blues of demonetization and GST
- Crude oil price rising to $86 a barrel
- Crash in farm prices that clearly put a dent in rural sales
- Continuous rise in vehicle prices
- Increase in axle load limit and permission to carry higher loads for existing vehicles which led to increase in freight capacity that is equivalent to 3 years freight demand
- Insurance regulators mandating 3rd party cover
This all led to a massive slowdown of sales by 31% in automobile sector which resulted in shutdown of plants by various big players like Maruti Suzuki, Tata Motors, Mahindra & Mahindra etc. Also Automotive Component Manufacturers Association of India (ACMA) estimated a job cut by 10 lakhs.
Fast-Moving Consumer Goods (FMCG)
Flattening rural demands, downtrading and increasing competitions from regional players is wooing away valued customers. FMCG sector has signaled a slowdown in demand growth, wherein the sales have lost speed to 7.3% in last quarter ending June. Rural market contributes to 40% of target market where the sales have been slowing down rapidly as a result of competition from regional players whose sales have been seen to rise by 28%. E-commerce now makes up 15% of FMCG market. Factors affecting can be: Liquidity crunch, Macroeconomics, Government policies, Implementation of GST, Monsoons and a Low base effect.
Should the slowdown worsen, FMGC's must adopt an alternate way by trimming ad-spends and take selective price cuts.
Crisis of confidence have become a crisis of currency availability. Banks and mutual funds are the main sources of NBFC's funding’s and due to stressed non-performing assets, banks have reduced funding NBFC's in past 9 months and so raising funds has become expensive by almost 50 basis points for NBFC’s. CARE ratings stated that the exposure of mutual funds to NBFC's declined by 63,000 crores since July 2018. NBFC like DHFL and IL&FS relied largely on short-term funds by issuing commercial papers. This strategy has now led to a huge asset-liability mismatch.
Other factors include:
- Availability of easy money from banks.
- Inefficient risk management.
- Lack of appropriate checks, balances and inspections.
- Inappropriate regulatory norms.
- Non- transparent and complex business procedure
Fitch estimates NBFC's to account for 20% of credit to Indian economy. As NBFC's are large source of finance for sectors like automobiles (30%), consumer durables, industries & housing finance sector (44%), and MSME's (lately). Automobiles and real state segments are therefore largely hit.
All these segments that contribute largely to Indian Economy state that India is going through an economic slowdown, which might result in a recession-like scenario and the current situation may worsen.