The Economist 07Dec2019

The EconomistDecember 7th 2019 55

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G

lobal investorsonce fell in love with

India’s growth “story” because of peo-

ple like Shanmuga Subramanian. Educated

in mechanical engineering, he became a

computer programmer, working with Cog-

nizant, an outsourcing firm, and Lennox,

which makes heaters and air-conditioners.

But that was not enough to exhaust his

technological enthusiasms. He recently

devoted four days of his spare time to scru-

tinising images of the Moon’s surface, pro-

vided by nasa, searching for any sign of an

Indian moon lander that disappeared in

September. He eventually spotted an in-

congruously bright pixel, which nasathis

week confirmed was debris from the craft’s

crash-landing.

Unfortunately, India’s growth story is in

danger of repeating the lander’s ill-fated

trajectory. The explanation offered by In-

dia’s space agency for the crash (“the reduc-

tion in velocity was more than the de-

signed value”) might apply equally well to

the economy. gdpgrew by just 4.5% in the

12 months ending in September. That is the

slowest pace since 2013 (see chart).

Back then, India suffered from chronic

inflation, high oil prices and an unsustain-

able current-account deficit, fragilities

that were all cruelly exposed by a sudden

deterioration in global investor sentiment

known as the “taper tantrum”. The present

slowdown, though similar in its gravity, is

quite different in its origins. Inflation is

low, external imbalances are modest and

oil prices are bearable. The decline began

with a loss of confidence not among for-

eign investors, but among the country’s

own consumers.

Their spending began slowing in early

2018, according to some measures. Matters

then took a sharp turn for the worse in Sep-

tember 2018 with the default of Infrastruc-

ture Leasing and Financial Services

(il&fs), one of many lenders outside the

traditional banking system that had be-

come a growing source of credit. Its failure

cast doubt on many similar institutions,

interrupting the flow of financing for pur-

chases of big-ticket items like homes and

cars. Sales of passenger vehicles slumped

by 32% in September compared with a year

earlier, their 11th monthly decline in a row.

Other consumer-facing industries have

also suffered. Mobile-phone operators

have faced predatory pricing from deep-

pocketed conglomerates and “tax terro-

rism” from overzealous revenue collectors.

Vodafone Idea reported a record loss of

$7bn in the third quarter, prompting Nick

Read, Vodafone’s boss, to complain about

unsupportive regulation, excessive taxes

and a Supreme Court decision that forced

operators to share additional revenues

with the government.

The government dawdled in its re-

sponse to the economic slowdown, per-

haps because it was too convinced by its

own economic boasts. Rahul Bajaj, an in-

dustrialist, has said that business people

India’s economy

Searching for a landing site

Output is growing at its slowest pace since 2013

Unstable orbit

Sources: Central Statistics Office; Haver Analytics

India, GDP, % increase on a year earlier

2012 13 14 15 16 17 18 19

0

2

4

6

8

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Asia

56 Corruption in Kyrgyzstan

57 Measles sweep Samoa

57 Freedom of speech in Singapore

58 Banyan: South Asia’s onion raj

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