NEW DELHI - After three heady years of strong growth, the Indian economy is losing steam.
Growth of gross domestic product has slowed to 5 percent in 1998, compared with 7.5 percent from 1994 to 1997.
However, India's economic slowdown is not a result of the Asian crisis. India's regulation of the capital markets and exchange controls has saved it from the economic meltdown in East Asia.
The slump is mainly India's own doing. The drop in gross domestic product growth and slowdown of the economy are attributed mainly to a sharp fall in the growth rate in agriculture, which accounts for 70 percent of the gross domestic product. Growth rates fell to around 6 percent in 1998, compared with 9 percent in 1996-97.
Industrial growth dipped to 4.6 percent growth in 1997-98, from 12.1 percent in 1995-96.
Three factors contributed to the slowdown:
Political instability. A coalition government has reduced investor confidence. The uncertain political climate also has created a lack of direction in policymaking.
International uncertainty after India's nuclear tests earlier this year.
Falling exports. The dramatic devaluation of the East Asian currencies of India's major trading competitors has given them an economic advantage.
After several years of spectacular growth averaging 30 percent a year, the automobile industry has been slowed by the recession. The 1998 federal budget, which raised customs duties on imports, has hurt the auto industry further.
Most joint-venture car companies import a substantial amount of components. The levy will raise costs about 35,000 rupees, or about $920, a car.
Although some of this can be absorbed by manufacturers, a large chunk will be passed on to the consumer, further dampening demand.
In 1997, passenger-car sales stood at 347,000 units compared with 325,000 units in 1996 and 268,000 units in 1995.
This year, passenger-car sales have fallen 4 percent. The major slump is in the luxury mid-sized segment, where all the major foreign competitors are concentrated. The segment has dropped by 20 percent.
The auto industry largely has met pent-up demand that existed after the industry was unshackled in 1991. Also, production overcapacity is developing, which is leading to significant price competition.
From now on, prices likely will fall, an unthinkable situation a few years ago.
Commercial-vehicle sales plummeted 29 percent this year. This sector is linked most closely to the swings of the economy, and so it has been hurt the worst.
Thus, the short-term outlook for the auto industry, which shows no signs of having bottomed out, is bleak.