VARANASI, India, October 4 (Reuters) – In the narrow lanes of the Hindu pilgrimage town of Varanasi, the center of a famous silk weaving industry, there are few signs of the nascent economic recovery heralded by the Indian decision makers.

Sales of heavily stitched silk sarees made in the ancient city on the Ganges are currently down 70% from the pre-pandemic period, residents say. Many weavers closed their looms, others sold them, and some workers took their children out of school, unable to pay the fees.

“The prices are skyrocketing and I can’t even get a third of what I earned before the pandemic,” said Mohammad Kasim, a weaver who has sold two of his 16 looms.

Soaring global prices for gasoline, diesel, cooking gas and other commodities like steel and copper are hurting millions of Indian households and businesses already affected by the pandemic.

India meets 80% of its oil needs through imports, and the government imposes more than 100% taxes on petroleum products like gasoline and diesel. Consumers and businesses end up paying higher fuel and transportation prices than other emerging economies.

On top of that, falling consumer incomes after the outbreak of the pandemic early last year threatens the demand for elastic priced products.

Broken in gold, silver and copper, the heavy Banarasi silk sarees made in Varanasi, also known as Benaras, are sold across India and abroad for women to wear at weddings and parties. special occasions.

Weavers say they are grappling with declining demand as the expensive sarees they make are replaced by cheaper varieties, along with high prices for raw silk and brocade.

Raw silk prices have jumped to 4,500 rupees ($ 61) per kg over the past four months, Kasim said, while brocade materials like copper and silver have become more expensive by 40% – leaving profit margins in saree making at less than 10%.

Kasim is one of millions of Indians in small-scale manufacturing and service industries – which account for 90 percent of jobs – who complain about a double whammy: high prices and low demand.

Retail price inflation has exceeded the central bank’s upper limit of 6% year-on-year on several occasions this year, although in August it fell to 5.3%.

This poses a risk for the nascent recovery of Asia’s third-largest economy after the worst-ever contraction of 7.3% in the most recent fiscal year ending in March.

The economy grew 20.1% annually in the April-June quarter, and the government’s chief economic adviser, KV Subramanian, said: “India is ready for stronger growth” .

But NR Bhanumurthy, vice-chancellor of Bengaluru Ambedkar University of Economics, said increased inflationary pressures by global supply chain problems and weak domestic demand would likely have a long-term impact on Indian manufacture.

“With the growing risk of high short-term inflation and massive unemployment lately, I don’t see any prospects of a full recovery anytime soon,” he said.

NO CONSUMER DEMAND

Wholesale-based inflation, an indicator of producer prices, rose double-digit for the fifth consecutive month to 11.4% in August year-on-year, raising concerns from businesses that could pass on the hike. costs to consumers.

Unlike some advanced economies, where governments have offered massive stimulus packages, relief from India’s pandemic has focused on credit guarantees on bank loans and free food grains for the poor.

Rajan Behal, general secretary of the Varanasi Fabric Merchants Association, an organization of around 800 wholesalers, said most companies were reluctant to take new bank loans even though the government promised to stand surety.

“We would have gladly mortgaged our properties for loans if there had been consumer demand,” he told Reuters.

The handloom and electric loom saree manufacturing industry, which employs 1.5 million people in Varanasi and surrounding towns with an annual turnover of 700 billion rupees per year, is facing a “undeclared crisis,” he said.

Mohammad Siraj, 45, a power loom worker, said his family was surviving on free food grains – donated by the federal government to two-thirds of the 1.3 billion people as a disaster relief. pandemic. Yet household costs were high.

“I took my daughters out of school because I can’t afford school fees anymore,” Siraj said.

Traders in Varanasi, which is also a major Hindu pilgrimage destination, are now praying for a resumption in tourist influxes and demand for clothing during the festival and wedding season that begins this month.

“We use our savings or go into debt to survive,” said Rahul Mehta, president of the local Tourism Welfare Association, a business body of about 100 establishments.

He said the revenues of around 6.5 million annual tourist inflows, estimated at 50 billion rupees in 2019/20 before the pandemic, could revive to 10-15 billion rupees this fiscal year if not was no increase in virus cases.

But any projection of increased demand is held hostage to rising prices.

“We might have survived the coronavirus, but we won’t be able to bear the burden of rising prices and falling demand,” Mehta said, adding that if tourist influxes and demand for sarees failing to resume during festival season, thousands of saree makers and sellers are expected to go out of business forever. (Additional report by Aftab Ahmed in NEW DELHI; Editing by Sanjeev Miglani and Raju Gopalakrishnan)