“Everything has gone up,” Singh said on a recent afternoon, as his family members plucked a meagre cotton harvest on their 1-acre patch of earth in the Indian state of Gujarat. He rattled off the items that cost more: the lentils that are a staple of his family’s diet; the cotton-oil cakes they feed to their dairy cows. Fertiliser. Diesel fuel for their tractor. Clothing, and school fees for the four children.
Across this nation of more than 1.3 billion people, as in many of the world’s developing countries, versions of such tribulations are diminishing fortunes.
The strain of higher prices reflects a global change in sentiment as the US Federal Reserve — known, not for nothing, as the central bank for the world — steadily lifts interest rates, as it did Wednesday. Investors have been pulling money out of riskier, developing countries and entrusting it to safer, more established economies like the United States. That has sent the value of currencies plunging from Argentina to Turkey to India, making basic goods more expensive for households and businesses, while amplifying debts.
“Farmers are losing money,” Singh said. “We just survive. We are earning less and spending more.”
The change in the flow of money has been engineered in part by people in Washington, some 8,000 miles away from Singh’s farm in western India. The US central bank has been raising interest rates, ending the era of ultracheap money unleashed a decade ago as the world plunged into the worst financial crisis since the Great Depression.
Last year, global investors delivered $315 billion in fresh capital to the stock and bond markets of emerging economies, not counting China, according to an analysis by Oxford Economics in London. This year, the flow dropped to $105 billion through October. Many economies have seen outright reversals, with Turkey, Argentina, India, Indonesia, Malaysia, Thailand and South Africa all seeing overall declines.
“You have the perfect cocktail of risks for emerging markets,” said Nafez Zouk, Oxford’s lead emerging markets economist.
“India is a country that is very vulnerable to the fallout to the readjustment of global interest rates,” said Joseph E. Stiglitz, a Nobel laureate economist at Columbia University in New York, and a former chief economist at the World Bank.
India imports more than 80 percent of its oil. Though the price of Brent crude oil — the global benchmark — has plummeted over the past two months, it has more than doubled since early 2016. Oil is priced in dollars. Its increase, combined with a 10 percent decline in the value of the rupee this year, have lifted the cost of petroleum-based products, from fuel to chemicals used by key parts of Indian industry.
Concerns are mounting about rising debt levels as the government of Prime Minister Narendra Modi unleashes spending aimed at winning popular support before next year’s elections. Worries fester over bad loans choking a banking system still dominated by the government.
In Gujarat, Modi’s home state, and a centre of business, many local industries require imports to make their wares — especially petroleum products. Gujarat’s largest city, Ahmedabad, a dusty, traffic-choked metropolis of 6 million people, is home to factories that produce plastics, from packaging materials to the film covering greenhouses.
“We are very much affected,” said Jigish Doshi, president of the Plastindia Foundation, an alliance of plastic industry trade groups that collectively represent more than 50,000 plastics companies across India.
Doshi’s own company, the Vishakha Group, makes plastic pipes used for irrigation. The fall in the rupee has lifted the cost of the raw materials by 15 percent over the last year. “We are slowing our production,” he said.
At a Mercedes dealership in the centre of Ahmedabad, where the most expensive model, the Maybach S 650 sedan, sells for 35 million rupees (more than $486,000), sales staff fret that the weaker rupee has inflated the costs of the vehicles. The top models are imported from factories in Germany.
Two blocks away, on a patch of garbage-strewn dirt within view of the dealership’s spinning Mercedes logo, some 600 people live without electricity in shacks fashioned with boards, plastic tarps and sheets of corrugated aluminium. Women scrub pots using water delivered once a day by a municipal tanker. Children pound sticks in the dirt for lack of toys.
Most of the families are migrants from villages who survive as ragpickers, earning less than $3 a day as they scour city streets for discarded materials they can sell — plastic bottles, scraps of paper, pieces of metal.
Laxman Gohel, a 38-year-old father of two, saved enough from ragpicking to open a tea shop. He boils water over a charcoal fire, making sales of about 1,500 rupees a day (about $21). But the price of charcoal has more than doubled over the last year, leaving him with perhaps 300 rupees in daily profit. He cannot pass on the costs.
“These poor people cannot pay me more,” he said.
Last year, torrential rains destroyed their cotton cop. This year, an insect infestation has cut it by half.
On a recent afternoon, Singh’s wife, Sonal Ben, stood in the 95-degree heat, pulling puffs of cotton from the plants that have flowered, and depositing them into plastic bags. Singh will use his tractor to haul the crop to a trader in town.
The diesel that fuels his vehicle has increased in price by one-fifth. Yet when he brings his crop to market, he cannot recoup the additional costs.
“The traders decide on the price,” he said. “I don’t decide.”
The traders themselves insist they are themselves at the mercy of global forces, accepting whatever price is dictated by commodity pits from New York to São Paulo.
“Now, we are losing money,” said Prahlad Bhai Patel, owner of a cotton mill in Kadi.
Ordinarily, Patel’s company sells half the product to domestic factories that spin cotton, and exports the other half to China, Bangladesh, Vietnam and Pakistan.
Lately, he just piles up bales at a loading dock, waiting for better days. The price for his exports is now too low to cover his costs, he said.
© 2018 New York Times News Service