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Thursday, 4 October, 2001, 09:01 GMT 10:01 UK
Indian economy smarts under crisis
Computer user in India
India's software industry is experiencing a severe slowdown
by Anil Sharma in Jaipur, India

The terror attacks on US have given India's economy a shock.

The already weak industrial sector has gone into reverse gear, with production falling in one sector after another. And now there are fears that the whole economy will fall into the grip of a slowdown.

Industrial slowdown
Car exports: down 7%
Pig iron: down 15%
Software exports: down 30%
Tourist arrivals: down 40%
Source: CII and trade estimates
"The signs are all there. The market is full of free offers, slashed prices, low-interest loans and what have you. Yet, the one thing that the economy needs to stay afloat is missing, consumers. It is clear that India is passing through a phase of economic recession", says K Mehrishi, professor of economics at a leading management institute

Weak demand

In Rajasthan, for example, the assembly lines of many factories manufacturing ball bearings are idle because orders have disappeared. Eleven out of 15 ball bearing factories are without work, and the industry is in the throes of a crisis.

Many other industries are also affected.

"I guess two out of five industries are closed or are on the verge of closing", Professor Mehrishi says, who adds that demand is very weak.

According to a survey of business confidence by the Confederation of Indian Industry (CII), at least one-third of industrial sectors are set to report a sharp dip in their fortunes during the past six months. About a third say production and sales are down compared to the same period last year, while 40% expect to see a decline in exports.

The once booming automobile, consumer electronics and consumer durable sectors are the hardest hit, while industries like aluminum and steel are in a precarious situation.

Terror's toll

The terrorist attacks in the United States, however, have put to rest any hopes of a turnaround - and hit the star of India's economy, the booming information technology sector.

Several IT industry conferences across the US as well as India were cancelled or postponed after the attacks.

The growth rate for the value of software exports, which used to stand at 50% annually, is likely to slip to 20% in 2001-02, a leading trade analyst predicts.

The Indian software and services industry currently accounts for almost 2% of the country's gross domestic product.

Knock-on effects

The impact of this gradual but painful economic slowdown is now being felt at the most personal level, as urban Indians lose their jobs and recruitment dries up.

Every sector has been affected, from banking to steelmaking, with millions facing voluntary retirement schemes.

And fewer new recruits are needed, even in fast-growing industries.

"Due to the slowdown, software recruitment has been affected by around 30% to 50%", said Dr. Raj Sharma, Director of the Cistems Institute of Information Technology.

"The demand for software professionals has dropped considerably, and we are not getting any fresh inquiries from software companies. The job market has never been so bad for freshers as it is today," says Ravi Chaudhary, who runs a placement agency.

"The job market will shrink by up to 25% this year."

Overall, the recent terrorist attacks on the US are expected to reduce the total ouput of the Indian economy by at least 0.2-0.3%.

Predictions that India's economy would grow by 6% this year now seems highly unlikely, and some experts are predicting that growth will be below last year's 5.2% - a blow to the government's plans for economic expansion.

See also:

27 Sep 01 | South Asia
17 Sep 01 | South Asia
05 Sep 01 | South Asia
10 Sep 01 | Business
17 Aug 01 | Business
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