The US sub prime crisis has started taking its toll. It has been spreading to Europe and Asia. India too has not been immune to the problem. However, the Indian finance minister has been regularly telling the media that the Indian economy is fine and there are no reasons to panic. But is it true? Is India really immune to the global meltdown as the finance minister says? Let us take a look at how the situation is unfolding in India.
Slump in real estate demand:
The global crisis has adversely affected the FIIs (foreign institutional investors) who had invested in real estate and related firms. With the withdrawal of FIIs from the Indian realty scene, the real estate developers are in a shaky position. As a result, they have switched over to marketing tactics like giving away a free flat one on one or offering a free luxury car on home purchase. Some developers have decided to build flats with one bedroom-hall-kitchen, a concept that was unheard of till recently. A developer says, “With the global downturn, we are finding it difficult to get customers for our property. We are also not getting any finance from the banks. So we have decided to offer a free Mercedes to the buyers of our luxury flats in order to tide over the liquidity crisis.” Not only that, many developers have started offering commission to brokers who promote their property.
Job cuts:
The US crisis is affecting Indian industries across all sectors. While sectors like IT and export are directly affected, others like banks and the auto sector have seen a slowdown in demand. In order to cope, many companies are resorting to layoffs. Infosys has asked its staff to take a year’s leave from their jobs in order to work for an NGO. During this time, they will earn half their salary, thereby saving the company some money. Jet Airways has started laying off its staff and has in particular, retrenched its non-Indian staff. Besides, a good number of senior management personnel are in for a huge reduction in salary. Suresh, who works in the airline industry has seen his salary being slashed. He is in dire straits now as he had taken a home loan. He is now wondering how to repay this loan. He says, “The reduction in my wages has really put me in financial trouble. I don’t know how I will repay my home loan, as I can barely save anything from my salary after taking care of my children’s school fees and other household expenses.”
Problems in getting loans:
With many banks facing a liquidity crisis, getting loans has become harder for the common man. This, in turn, has affected the auto and real estate sectors. Sunil* wanted to buy a new car. But despite his best efforts, he could not get a loan from any bank. He says, “Despite my reasonably high salary, many banks turned down my loan application. Ultimately, I had to borrow from a friend to buy the car.”
Redemption crisis in mutual funds:
With stock markets collapsing, several investors started withdrawing money from their mutual fund investments. This created a liquidity crisis for asset management companies, which found it difficult to meet the sharp increase in redemption requests.
With several such instances, it’s hard to say the global meltdown has not affected the Indian economy. This is just the tip of the iceberg crisis and it remains to be seen what more India will see.
The question is how easily India can withstand the crisis.
