'Decoupling' turns to myth as India growth story stumbles

FE Team | Published: December 15, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

NEW DELHI, Dec 14 (AFP): Nobody in India is using the word "decoupling" any more to suggest Asia's third-largest economy can dodge the impact of the widening recession engulfing the West.
The clearest sign that the financial turmoil is hitting India came late last week when official data showed factory output contracted for the first in 15 years, due to falling trade and shrinking domestic demand, economists say.
"This whole idea of decoupling has been shot down very clearly by the global crisis, which is getting transmitted through trade and the financial markets," said Shubadha Rao, chief economist at Mumbai's Yes Bank.
Industrial production fell 0.4 per cent in October -- a big turnaround from the 12.2 per cent growth a year earlier, the data showed, and analysts said the picture would only worsen.
Up to a few months ago as the US-led banking crisis ballooned, Indian policymakers comforted themselves, saying the country, with its dynamic and vast domestic market of 1.1 billion people, had "decoupled" from the West.
Car sales in November posted their biggest annual fall in eight years, sliding by 19 per cent, while truck and other commercial vehicle sales -- a crucial signal of future economic activity -- slumped by 50 per cent.
"The worst is yet to be seen," said Sherman Chan, economist at Moodys.com. "Losing support from external sectors, India is unlikely to see a rebound in manufacturing output anytime soon."
Economic confidence has been shaken further by last month's Islamic militant attacks on India's financial capital Mumbai that left 172 people dead, including nine of the 10 gunmen.
The targets included two luxury hotels where foreign investors stay and do deals, throwing up questions about the security of conducting business in India, which has been hit by a slew of attacks in the past year.
"There has been a definite spurt in attacks by people trying to hit cities of importance to India," said Alok Bansal, research fellow at the Institute for Defence Studies and Analysis.
The economy's troubles have been aggravated by the impact of four years of aggressive monetary tightening to combat inflation, which has been tamed by the collapse in global commodity prices.