Rising Prices Hit India's Poor

12/10/2012 8:30 am EST


While wealthy Indians thrive, the poor are feeling the impact of high inflation. For these people, the predicted economic improvement cannot come a moment too soon, writes Rebecca Bundhun of The National.

For Sumeet Supadia, a road sweeper in Mumbai, making ends meet in today's economic environment in India is tougher than ever.

The sole breadwinner for his family, with three young children and his wife and grandparents to support, Supadia, 43, says that rising costs in India mean it is increasingly difficult to cover the expenses of daily life with his salary of 11,000 rupees ($202.50) a month.

"Food is more expensive," he explains. "Electricity is more expensive. Fuel is more expensive. So many problems are there. The rich people are getting richer and the poor man becomes very poor."

India's economic growth slowed to 5.3% for the quarter between July to September, while inflation has remained stubbornly high, coming in at 7.45% in October. The government also recently reduced fuel subsidies in an effort to reduce its ballooning fiscal deficit. All this is taking its toll on Indians.

"Slowing growth is having an adverse impact on the income levels of Indians, especially at a time when the cost of living has increased over the last five years on the back of high and sticky levels of inflation, particularly of food items," says Gaurav Kapur, a senior economist at the Royal Bank of Scotland in India. "On the whole, the standard of living of the Indians is under pressure."

In comparison with the Eurozone, where growth has stagnated, economic growth of more than 5% may seem enviable. But the consensus is that India, with a population of more than 1.2 billion, needs consistent growth of about 8% for economic benefits to reach the country's poor.

"For countries the size of India, particularly in terms of population and demographic profile, higher growth is necessary to help improve the standard of living, raise per capita income levels, and reduce the level of poverty," says Kapur. "It is also important to ensure that higher growth is generated through investments—both public and private—in order to ensure that inflation remains in check and growth at higher levels become sustainable.

"The recent growth slowdown in India is largely on account of a sharp slowdown in investment activity, which has been accompanied with higher levels of inflation, thereby reducing the potential growth rate of the economy."

Arvindo Fernandes owns a small grocery shop called Frigi Fresh in Mumbai. He explains that business is suffering.
"There's a drop in the business because prices have gone up," says Fernandes. "Customers think twice before buying items. A loaf of bread that was one to two rupees is now four rupees, so they'll come and they'll buy half a loaf."


He adds that his suppliers are charging him more, while rents have increased, which means that his profit margins are being squeezed. The shop's profits are down by about 15% compared with last year, Fernandes estimates.

"It's very hard," says Margaret Gabriel, 60, a cook in Mumbai, who earns 5,000 rupees a month. "Everything from A to Z has gone more expensive, and the money I earn has not increased."

Bernard Braganza, a retiree in Mumbai who worked in Dubai for 25 years as a personnel and administration manager for a furniture company, says he has noticed the increase in prices, but says that it is the poor that are really affected by the economic conditions.

"My grown-up children are working in the corporate sector and they're getting salary raises and bonuses, so they can manage. It's the poorer classes that are struggling."

Uday Sodhi, the chief executive at Headhonchos.com, a job search service for management professionals in India, says that salaries have been rising at a mid to senior level, but the outlook for the market is not completely rosy.

"The job market is obviously reflective of how the overall industry performs, and therefore the impact would be directly on the job market," says Sodhi.

A survey by Headhonchos.com revealed that 49% of employers surveyed would freeze or reduce their headcount over the six months between October and March, as they put growth plans on hold and try to save on costs.

"I would say it's cautious," says Sodhi. "Both the employers and the people who are looking out for jobs, are looking at the scenario in a very cautious way. On the whole, people all believe that next year things will improve. However, the numbers that are coming out are like this, so maybe we have to watch for another quarter to see if things are improving."

Sonal Aurora, the managing director of the recruitment consultancy Perfman HR in India, expects things to pick up substantially in the coming months. "In 2012, the economy slowed down, but I think it's picking up right now, and I'm very positive about the first quarter in 2013," she says.

"The last six months there had been a policy of 'wait and watch,' but the feedback we have got is that from January onward the hiring will start."

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