STEVE INSKEEP, HOST:

India's economy is a mess. For years, the world's largest democracy enjoyed incredible growth. It was a star of the developing world. Not this year. Growth has slowed down, and India's currency, the rupee, has fallen sharply since June. That means India's imports have become far more expensive. Yesterday, a celebrated economist took over the Reserve Bank of India, and he has a lot of work to do, as you can learn from Indian businesspeople who spoke to NPR's Julie McCarthy.

JULIE MCCARTHY, BYLINE: Rahul Kacker is alarmed over the slide in India's fortunes. Sales at his auto parts manufacturing business are down 30 percent since July. That translates into lost sales of $200,000 a month.

RAHUL KACKER: Smaller companies like mine get into a cash-flow crisis.

MCCARTHY: Are you in a cash flow crisis?

KACKER: Not at present, but if the scenario goes on like this, soon we will be.

MCCARTHY: The downturn is especially startling, because his company has seen 15 percent annual growth for the past 10 years.

KACKER: It's a rude shock. Yeah.

(SOUNDBITE OF MACHINERY RUNNING)

MCCARTHY: Kacker's factory, just outside Delhi, pumps our components for automobiles, mostly molded plastics fashioned into glove compartments, grills and car door pockets. The injection molding machines on this factory floor form liquid polymers into more elaborate components.

KACKER: This injection molding is a process by which we mold the polymers into a particular shape. This is a back lamp cover.

MCCARTHY: And where are these going?

KACKER: They're going to Maruti Suzuki.

MCCARTHY: Kacker's customers are some of India's biggest carmakers. Besides Maruti Suzuki, there's Tata Motors and Honda Japan. But automobile sales in India are in a retreat, down by some 24 percent since January, says the Society of Indian Automobile Manufacturers.

(SOUNDBITE OF DOOR CLOSING)

UNIDENTIFIED WOMAN #1: (Foreign language spoken)

MCCARTHY: At a Maruti Suzuki dealership back in Delhi, a spokeswoman makes a hard pitch to a prospective buyer. But manager Deepak Kapoor says high interest rates, rising fuel prices - diesel's gone up eight times this year - and uncertainty in the broader economy has knocked a third of his customers out of the showroom.

DEEPAK KAPOOR: So, now the numbers game has dried, and that is really hitting our bottom line.

MCCARTHY: He says if he converted 20 of 100 customers into buyers before, he now must convert 50 out of the 70 who walk in.

KAPOOR: If you will not convert that 50, then we will not make up for this 30 percent dip.

MCCARTHY: India's falling rupee is also driving up business costs. In Rahul Kacker's case, the plastics used to mold his car parts are made from petroleum. With the rupee losing purchasing power, the cost of importing petroleum - priced in dollars - has just become a lot more expensive. One reason for the rupee sell-off is the U.S. Federal Reserves anticipated tighter monetary policy. It has investors pulling money out of emergency markets, such as India, while a resurgent American economy draws capital back to the U.S. With the rupee down, economist Arvind Subramanian says all foreign goods are going to be more expensive, and that is going to drive up inflation in India.

ARVIND SUBRAMANIAN: And the kind of rule of thumb is that if the rupee depreciates by 10 percent, you know, Indian prices will be more expensive by about 1 more percent. You know, if the inflation rate is now 10 percent in India, a 10 percent depreciation will make Indian inflation 11 percent. And that's a cost to consumers.

MCCARTHY: Nothing sums up food inflation like the humble onion, and consumers are tearing over the price.

(SOUNDBITE OF CLANGING)

MCCARTHY: Onions recently skyrocketed to 80 rupees, or $1.25, per kilo, exorbitant in a country where one in three people lives on less than a dollar a day. Onions were selling in central Delhi's Kotla Market for 60 rupees a kilo, where Mohammad Saleem muttered about pitching a few at politicians. People are angry about the price of onions. Are you angry?

MOHAMMAD SALEEM: I'm angry, but what I do?

MCCARTHY: You have to cook with them.

(LAUGHTER)

SALEEM: Without the onion, I am not cooking my Indian food.

MCCARTHY: Saleem, a wedding videographer, says with his disposable income declining, his savings have dried up.

SALEEM: My bank account is zero, and income is sort of not very sufficient, so I'm not saving a single penny.

MCCARTHY: That's a big change for India, isn't it?

SALEEM: In India, yes. In 10 years, very critical condition. But like me, daily earning, daily burning. You know?

MCCARTHY: Daily earning, daily burning.

(LAUGHTER)

SALEEM: Yes. Simple language.

MCCARTHY: From the man on the street to business owners, everyone agrees that corruption is burning the Indian economy. Car parts maker Rahul Kacker says corrupt officials from local agencies hit him up for what he wryly calls their fee.

KACKER: Consultancy.

MCCARTHY: And what does he get for that consultancy?

KACKER: It's for the peace of my company to keep running, you know.

MCCARTHY: Are all of your colleagues having to do this? Is anybody exempt?

KACKER: No. Nobody's exempt, but nobody specifies it, you know, in public. It's a plague. It's all over the country. So, people are very fed up.

MCCARTHY: Economist Subramanian says corruption, poor infrastructure and burdensome regulation have all depressed private investment. He says it's only appropriate that Indian assets, as well as the rupee, be re-priced. The markets surged yesterday after Raghuram Rajan, the suave new governor of India's Central Bank, took charge outlining reforms. The MIT-trained economist, who famously predicted the 2008 financial crisis, aims to stabilize the rupee and restore investor confidence. But Rajan says he would not use the words crisis and India in the same breath.

RAGHURAM RAJAN: They're a very stable, very solid economy. There's no reason to be down. Yes, we're going through challenging times. Which country is not? But we will overcome these challenges.

MCCARTHY: The challenge for the government will be remaining in power after next year's election. There is deep frustration over the growing economic hardships that are not likely to end soon. Vegetable vendor Gulal Yadaz wants the Congress part of Sonia Gandhi out.

GULAL YADAZ: (Foreign language spoken)

MCCARTHY: I think it's possible, he says, that this entire economic situation can cause a change in government. And it's time for a change, he says. Julie McCarthy, NPR News, New Delhi.

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