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Economy

India's poor harvests lead to job losses at manufacturers

As onion prices rise, demand for motorbikes falls and Honda suspends operations

Prolonged rains have pushed onion yields down an estimated 30%, causing prices for the key ingredient to soar and leaving rural consumers with little cash. (Photo by Moyuru Baba)

NEW DELHI -- Freakish weather and poor harvests are taking a toll on India's rural areas, where consumer spending earlier this year slowed so drastically that the government decided not to release the numbers.

Farmers account for about half of India's population, and their hard times are beginning to spill over into the overall economy. Last week, government data showed the country's gross domestic product grew 4.5% on the year in the July-September quarter, the slowest rate in six and a half years.

Prime Minister Narendra Modi was already facing the wrath of disgruntled farmers, who in early November pressured his administration to withdraw from negotiations for the Regional Comprehensive Economic Partnership, a regional free trade pact.

The agricultural sector is responsible for nearly 20% of economic output, almost as much as the manufacturing sector.

In mid-November, local media reported that consumer spending in rural areas through June had tumbled 8.8% -- the steepest decline in 45 years. The figure shocked the government, which decided not to release the survey, claiming problems with the "quality" of the data.

The move prompted critics to accuse Modi of trying to conceal bad news.

The rural spending slowdown is being blamed on abnormal weather that damaged crops. In the western state of Maharashtra, prolonged rains pushed the onion yield down an estimated 30%. Satyavaan Singh, a 43-year-old farmer in the state, says the poor harvest has left him with little cash.

Onion prices have now soared about tenfold, from 10 rupees ($0.14) per kilogram five months ago. The sky-high prices have put a strain on households, which have been forced to cut back on their consumption of onions, a key ingredient in Indian cuisine.

Farmers with less than 2 hectares of land account for 85% of India's agricultural population, according to NLI Research Institute. Their income is only about 30% that of nonagricultural workers.

After being reelected in May, Modi pledged to boost farmers' income by consolidating farms and promoting modern agricultural technologies. But his initiatives have been hobbled by the unusual weather.

Slumping rural spending has spilled over to the manufacturing sector, creating further headwinds for an economy that had been growing briskly in recent years.

Praveen Saini, a 32-year-old employee at a Honda Motor motorbike plant in the northern state of Haryana, is among those feeling the pinch. Workers on short-term contracts started losing their jobs in August, he said, disappointed that he could not buy presents for his family during the annual Diwali festival in October.

Motorbikes are popular mainly in farming villages, but Honda suspended operations at its plant for 14 days in November, citing weak demand.

Farming families generally do not have much savings and have to take out loans to buy big-ticket items. But loans have become harder to come by due to financial uncertainties at many nonbank lenders, dealing another blow to the economy.

The latest GDP data published on Friday by the National Statistical Office showed a weakening economy, with the agricultural sector growing at a dismal 2.1% during the July-September period, down from the roughly 5% recorded a year ago.

Manufacturing fared even worse, shrinking 1.0%, the first contraction in two years. The services, financial and real estate sectors are also being pummeled.

The government has unveiled a flurry of measures to ignite spending since the end of August, but the effects on growth have been limited. India Ratings and Research, a Fitch group company, says the stimulus measures have failed to reverse the downward trend in consumer spending, with no end in sight.

During a 16-nation summit on Nov. 4, India indicated it would not join the RCEP, an Asia-Pacific trading bloc involving the 10 members of the Association of Southeast Asian Nations along with China, Japan, South Korea, India, Australia and New Zealand.

The trade pact would lead to a flood of farm imports, threatening the livelihoods of many small farmers. Alarmed by the likely loss of support among Modi's all-important farm base, the government has been hesitant to join the pact.

Continuing economic woes in rural areas are already starting to chip away at the Modi administration, affecting domestic and foreign policy.

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