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Friday, Oct 31, 2008
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Ripples from Wall Street hit Kochi

K. P. M. Basheer

Kochiites are bracing themselves to face the global economic slowdown

Photo: H. Vibhu

NO TAKERS: Shrimps on sale at a fish market in Kochi. Seafood exports are facing a slump. —

KOCHI: When Wall Street giants fell one by one in September, bank customers in Kochi rushed to the new-generation private banks’ ATMs to pull out money from their accounts. Many ATMs ran out of cash and had to be reloaded every day. There was a near-run on one new-generation bank, which had stakes in global investment banks and tie-ups with international insurance companies. The bank sent out SMS to customers seeking to reassure them of its financial health.

A substantial part of the money withdrawn from the new banks got parked in the old-generation public-sector banks. There was a sudden spurt in opening new accounts with these banks. Many of the new account-holders had in fact been old customers who had, complaining of poor service, left for the customer-friendly new banks.

The panic ebbed in weeks and customers’ confidence, to a large extent, returned. It, however, signalled the arrival in Kochi of the ripple effect of the international financial crisis triggered by the Wall Street meltdown.

Thanks to the strong fundamentals of the public sector banks, the banking sector has so far weathered the crisis. But this has not been the case with many other sectors. For instance, the marine fisheries sector has taken a beating. Because of the economic slowdown, hundreds of thousands of jobs have been axed in the U.S. and Europe and people’s purchasing power has slumped. This has reduced their demand for seafood, which in turn depressed seafood exports from Kerala. Abraham Tharakan, former president of Seafood Exporters Association, said shrimp, which is exported to the U.S., Europe and Japan, is considered a luxury item and hence when the incomes fell in these countries it naturally got slashed from the shopping list of the average consumer. Seafood exporters report a 20 per cent fall in demand. Some consignments have already been cancelled, but mostly because of poor quality and delayed shipments.

Marine fishing is one of the largest employers in Kerala and traditionally, Kochi has been the nerve-centre of seafood export. The low export demand (and hence low price), if it stayed for long, will wreck the marine fishery sector, which has been under assault from several economic and non-economic factors. The Kochi region will be the worst-hit.

Another sector that is in for a hit is tourism and hospitality industry. The global crisis has already slowed inflow of tourists into Kerala from Europe and the U.S. Kochi, being the largest city in Kerala and having good connectivity, has of late been emerging as the gateway to Kerala. But, the recession has pinched the hotels and travel agencies in the city.

Homestays, the favourite of the European budget traveller, will be badly affected, too. However, the top executive of an up-end hospital pointed out that health tourism would not be hit hard because a majority of health tourists are from the Gulf countries, and not from the West. The slowdown would not discourage the Arab visitors, flush with petro-dollars, from checking into the hospitals, he reasoned.

Analysts say that the impact of the slump will not be drastic for Kochi’s IT sector which is not a big player nationally. Small companies constitute the major chunk of the IT scene. Of course, there have been pink slips, pay cuts and benching here too. But the silver lining is that, in due course, western corporations, in a bid to cut costs to survive in the times of slowdown, are expected to outsource even more to India to cash in on the country’s low-wage IT manpower.

Analysts point out that the slump in the real estate sector is not the outcome of the global crisis.

The slump, seen over the past six months, was caused mainly by domestic factors— such as stiff Government regulations intended to cool the overheated real estate market fuelled by illegal money.

Economic observers say that while the global slowdown will definitely hit Kochi’s economy, the gains from depreciation of the rupee against the US dollar will to an extent make up for the loss.

The depreciation is expected to lead to a flood of NRI investments in the real estate sector, thus keeping it in good health in the months to come.

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