More growth pain ahead as Indians tighten purse strings amid slowdown

The RBI has lowered interest rates to a nine-year low, but that impact is yet to be felt due to tardy monetary policy transmission and subdued demand for loans

Indians are cutting back on spending from hair oils to motorcycles in a fresh sign that the slowdown in Asia’s third-largest economy is becoming more entrenched.

That is likely to add pressure on policymakers to ease both fiscal and monetary policy in the coming months at a time when Finance Minister Nirmala Sitharaman tours the country to meet various stakeholders and lobby groups. The Reserve Bank of India has lowered interest rates to a nine-year low, but that impact is yet to be felt due to tardy monetary policy transmission and subdued demand for loans.

On Friday, Hero MotoCorp Ltd., the country’s largest two-wheeler maker, said it had shut its manufacturing facility for three days until Aug. 18 in response partly to “the market demand scenario” and inventory management. The same day, Sundaram-Clayton Ltd., an auto parts supplier, said it will shut its factory in Padi in the southern Indian state of Tamil Nadu for two days until Aug. 17, citing “business slowdown across sectors.”

Mirroring the sentiment about weak consumption, Emami Ltd., a cosmetics to healthcare conglomerate, said that the company was witnessing lower demand for its hair care products.

“We are doing some cost optimization,” Priti A. Sureka, a director at Emami said in an interview in Kolkata.

Earlier this month, the company reported earnings that missed estimates as revenues took a hit, highlighting similar struggles among consumer good makers including Hindustan Unilever Ltd. and Britannia Industries Ltd. This does not bode well for India’s overall growth rate, which has been hit by slowing public spending and a cutback in private consumption.

Official gross domestic numbers for the June quarter are due Aug. 30 and analysts forecast the economy to have expanded 6.1% from a year ago, which is higher than the five-year low of 5.8% seen in the January to March quarter, but well below the 7-8% pace seen in the past few years.

A shadow-banking crisis for the past one year has weighed on private consumption which contributes nearly 60% to the GDP. The latest consumer sentiment survey from the central bank highlighted worries about job losses with a subdued economy keeping many from spending.