Friday6 September 2019 ★ FINANCIAL TIMES 3
I N T E R N AT I O N A L
A M Y K A Z M I N— NEW DELHI
Kaushik Sengupta, 45, a product devel-
opment manager for a hoe manufac-s
turer, is the kind of middle-class Indian
whose family’s consumption should be
helpingpower the economy.
But his decision in 2009 to buy a
Rs2.4m ($33,000) flat from an ostensi-
bly reputable property developer, who
promised it would be ready in two years,
proved a financially crippling mistake.
Today his unfinished flat on New
Delhi’s outskirts is one of the estimated
465,000 residential units across India
that were sold butnever completed sa
property developers confronted regula-
tory issues, litigation overland titles ro
simply ran out of money.
For the past decade, Mr Sengupta, like
many others, has paid both a mortgage
and rent, which together eat up around
half his Rs80,000 monthly salary. The
rest goes on food, school fees and other
household necessities, leaving little for
discretionary purchases.
“I end up with nothing in my hand to
spend,” hesaid. “It’s a disaster.”
He is not alone in this gloom. After a
surge ofnational optimism ollowingf
Prime Minister Narendra Modi’s first
election victory in 2014, many Indian
families havelost confidence in their
economic prospects.
As they confront challenges ranging
from an urban real estate crisis to arural
income squeeze nd persistent lack ofa
job opportunities or young people,f
India’s households are engaging in a col-
lective belt tightening that has under-
mined economic growth.
India’s gross domestic product growth
is in its fifth consecutive quarter of
deceleration, figures published last
week showed, tumbling to asix-year low
of just 5 per cent year on year between
April and June. That was down sharply
from thedisappointing 5.8 per cent in
the first three months of 2019, and from
8 per cent in the same quarter the previ-
ous year.
One of the biggest drags on growth
was a sharp deceleration in private con-
sumption, which had been one of the
economy’s major growth engines over
the past few years. Private consumption
grew just 3.1 per cent year on year from
April to June, down from 7 per cent
growth in the previous quarter. On a
quarter-on-quarter basis, private con-
sumption contracted 6.7 per cent.
The shift has been exacerbated by a
withdrawal of previously easily availa-
bleconsumer credit rom now-ailingf
non-bank lenders.
“Consumers in rural and urban areas
have reached the point where they can-
not see any income growth,” said Sunil
Kumar Sinha, economist at India Rat-
ings and Research. “Whatever little
hope they had that things will improve
is gone, and households have put a sud-
den brake on their consumption.”
As a result, manufacturing has taken
a hit. Its growth tumbled to 0.6 per cent
year on year, with the car industry suf-
fering asevere contraction leadingto
hundreds of thousands of job losses.
The grim data have stunned analysts,
many of whom have now sharply low-
ered their growth forecasts for India’s
economy for the current financial year
to about 6 per cent, and prompted a rare
public rebuke from Mr Modi’s predeces-
sor, Manmohan Singh.
“The state of the economy today is
deeply worrying,” Mr Singh aid in as
video issued by the opposition Congress
party after the GDP data were released.
“India has the potential to grow at a
much faster rate. But all around, mis-
management by the Modi government
has resulted in this slowdown.”
New Delhi has downplayed the mag-
nitude of the economic change, pinning
the blame on a deteriorating interna-
tional economic environment stem-
ming from tradefriction between the US
and China. It has emphasised that India
is still growing faster than many devel-
oped economies.
Economists say India’s economy is
likely to show slight signs of a pick-up in
the second half of the financial year.
But, many say, getting growth to reach
its potential rate of 8 per cent will
require more profound structural
reforms to improve the business climate
and tackle serious long-term challenges,
including a persistent lack of job crea-
tion that constricts household budgets
and undermines avings rates.s
Household savings — the biggest com-
ponent of a nation’s overall savings rate
— have fallen from 23 per cent of GDP in
2012 to 17 per cent this year. Household
indebtedness rose from 9 per cent to 11
per cent of GDP in the same period.
“India’s fundamental problem is that
employment growth and GDP growth
are not working in sync,” said Ritika
Mankar, an economist at Ambit Capital.
“As a result.. the pace of savings is just.
not growing and the savings-to-GDP
ratio has in fact been coming under
pressure.”
Ms Mankar said lower savings led to a
higher cost of capital which then
damped down investment. “There is
just not enough money available at
affordable rates.”
Meanwhile, Mr Sengupta, straining to
pay both rent and a mortgage, is pessi-
mistic about his personal prospects.
When Mr Modi was first elected in 2014,
he had hoped for a solution to help so-
called stuck homebuyers like him. That
hope has since dissipated.
“Everybody voted in 2014 thinking
that whatever mess they are in will be
sorted out,” he said. “But the govern-
ment is not intervening or coming on to
the scene.. .The reality is that nothing
constructive is coming out.”India households
tighten belts
as economic
gloom deepens
Sharp drop in spending undermines
growth after access to credit dries up
‘The state of the economy
today is deeply worrying.
India has the potential to
grow at a much faster rate’
Off plan: 465,000 residential units across India were sold butnever completed —Anindito Mukherjee/BloombergIndia’s economy is losing momentum
Year-on-year change in GDP ( )Sources: Bloomberg; Reserve Bank of India Consumer confidence is declining
Indices ( neutral) Current situationFuture expectationsD O N W E I N L A N D— BEIJING
Provincial auditors across China are
sounding the alarm over the prospect
of Rmb3.8tn ($560bn) orth ofw local
government debt maturingin the next
two and a half years, presenting a risk
to the financial system.
The auditing office of Shaanxi province
in north-west China is the latest author-
ity to release a worrying report on the
level of debt repayments facing the local
government.
The officewarned this week the prov-
ince faced a heavy repaymentburden
over the next five years and 34 per cent
of its so-called “hidden debt” must be
paid back before the end of the year.
Hidden debt for Chinese local govern-
ments often refers toobligations that do
not fall directly on to government books
but are still considered liabilities. Local
government financing vehicles (LGFVs)
are a primary source of the hidden debt.
“The burning question is whether
debt-strapped governments will be able
to quickly bail out LGFVs that become
distressed,” S&P Global Ratings said.
“The stakes are high. If defaults or bank-
ruptcies among high-profile LGFVs
become epidemic, it would erode mar-
ket confidence, tarnish government
reputations and destabilise the financial
system.”
Putting a figure on the size of local
government debt is a difficult task.
Many loans are connected to theopaque
shadow banking industry and are
funded by trust companies and wealth
management products connected to
wealthy individuals.
The known quantity of onshore bonds
that financing vehicles must repayby
2021 is Rmb3.8tn, according to S&P, a
burden it described as “crushing debt
problems” that many local govern-
ments would struggle to pay.
Several LGFVshave defaulted on ren-
minbi-denominated debt this year, and
one group, Qinghai Provincial Invest-
ment Group, defaulted in February on
US dollar-denominated debt, an event
not seen in China in 20 years.
Additional reporting by Nian LiuMaturing liabilities
China auditors sound alarm
on local government debt
SEPTEMBER 6 2019 Section:World Time: 9/20195/ - 17:42 User:john.conlon Page Name:WORLD2 USA, Part,Page,Edition:EUR, 3, 1