India’s inflation rate increased this week to well over 6 percent -- despite recent aggressive monetary tightening on the part of the government. Officials say that soaring food, metal and oil prices have contributed to the increase. India’s poor masses are the hardest hit by inflation -- especially those working in the textile industry, the country’s second-largest employer.
India's service industry is so far unaffected by the downturn in the economy but for how long?
The activity in this small clothes factory in India's capital New Delhi is deceptive. The looms are juddering but takings have decreased considerably. High interest rates, over 6 percent inflation and problems with energy supply are all putting pressure on the business. And the weak US dollar is also not helping. Over the past 15 months, the rupee has gained 15 percent against the dollar.
This is a serious problem for India's export-dependent economy says factory head Sudhir Dhingra: "It has really hit some of the very labour-intensive industries, such as leather, textiles, gems and jewellery.”
“These industries are the driving force behind the creation of jobs for rural people, who are semi-skilled, or not skilled. These people have not been able to get jobs in agriculture and have moved away from the villages to work in textiles.”
In front of the factory, there are queues of daily wage workers looking for work. Several million jobs have already been lost in the textile sector.
22-year-old Sajju Mallik is despondent: "Every morning I come here and look for work. But it is becoming less and less frequent. May be one or two days a week. If this continues, I'm going to have to go back to my village."
However, high-quality services and products from India are as yet relatively unaffected. The software sector is doing well, as are call centres and the steel industry. But the problems of the textile sector are gradually affecting India's economy as a whole. The record growth of 9 percent is nearing 8 percent.
The latest figures show that the growth of industry has gone down by half since the beginning of this year. The strong rupee is partly responsible, complains Swati Piramal, who is in the pharmaceuticals sector.
"Exports are lower. Industrial production -- particularly white goods -- are down. And we are certainly seeing a slowing down because of currency fluctuations as most of our products are in dollar revenue. We are all worried,” she said.
Consequences for government
But this crisis is not only having a negative impact on private industry. If the situation deteriorates further in India's labour-intensive sectors, the government will face serious challenges.
Delhi promised economic growth would benefit the whole population. But this is not the case for low-skilled workers in the textile sector says Sudhir Dhingra from the clothes factory.
"We need to protect the jobs that these industries have. This is a very large amount of jobs. [According to reports,] four million jobs have been lost in the past six months in the textile sector alone and they are projecting another four million in the next six months. That's huge! Do we want to wait until we have people coming onto the streets a year from now? Or do we want to fix them today?"
Dhingra and fellow business people have called on the government to introduce rapid measures to protect India's textile industry, which accounts for about 3 percent of GDP, 14 percent of total industrial production and 30 percent of total exports.
Employing almost 40 million people, it is the second largest employer after agriculture.