TIRUPUR, India — When Alan Greenspan ran a consulting firm and wanted to know where the economy was headed, he would often look at sales of men’s underwear as a guide.
Mr. Greenspan, who later served as chairman of the Federal Reserve, believed that when times were tough, men would stop replacing worn-out underwear, which no one could see, before cutting other purchases.
By that measure, India is in a serious slump.
“Sales are down 50 percent,” said Jeffrin Moses, gesturing toward the boxes of cotton briefs and tank tops bulging from the shelves of the Tantex undergarment emporium in Tirupur, the southern city where most of the country’s knitwear is made.
It’s not just underwear. Car sales plunged 32 percent in August, the largest drop in two decades, and carmakers are warning of one million layoffs as shoppers balk at rising prices and struggle to get loans from skittish lenders. Macrotech, a big real estate developer that has teamed up with President Trump on a residential tower in Mumbai, just laid off 400 employees as demand for new housing sinks.
Families are even skimping on the 7-cent packets of Parle biscuits that are a staple of India’s morning milk and tea. They are turning instead to even cheaper snacks made by local food vendors, according to Mayank Shah, a Parle executive. Biscuit sales are down about 8 percent, he said, and if current trends continue, the company may cut as many as 10,000 jobs.
Further darkening India’s outlook is the global economic slowdown, the recent spike in oil prices and the impact of Mr. Trump’s trade battles — including one with India.
On Friday, the Indian government, which spent months playing down evidence of a slowdown, finally acknowledged the depth of the problem, announcing a surprise cut in income taxes for all companies and additional incentives for manufacturers.
And this weekend, Prime Minister Narendra Modi is traveling to Houston to meet with Mr. Trump and try to resolve some of their trade disputes.
Until last year, India, with a population of 1.3 billion people, was the world’s fastest-growing large economy, routinely clocking growth of 8 percent or more. Now the government pegs the country’s growth at 5 percent. And the layoff notices are piling up, with unemployment at 8.4 percent and rising, according to the Center for Monitoring Indian Economy.
India’s reversal of fortunes, partly driven by domestic problems like neglected farmers, is ominous for other developing countries in Asia, Africa and Latin America that are trying to navigate both the weakening global economy and Mr. Trump’s fusillade of trade conflicts.
“India is potentially a bellwether,” said Per Hammarlund, the chief emerging markets strategist at SEB, a Swedish bank. “It’s a sign of the global economic trend right now: Growth has slowed further this year than last year.”
As skittish global investors have flocked to the safety of the dollar, India’s rupee and other emerging-market currencies have plunged in value. That has made vital imports of energy, electronics and factory equipment more expensive. Last weekend’s attack on two Saudi Arabia’s oil facilities, which sent the global price of oil soaring, underscored just how vulnerable India and other developing countries are to external factors beyond their control.
Like China and Indonesia, India is grappling with the fallout from years of excessive lending encouraged by the state. In India’s case, the overhang of bad bank loans, coupled with recent defaults by nonbank financial firms, has curbed lending to consumers and businesses.
Policy decisions by India’s central and state governments have worsened the country’s downturn, according to economists and business leaders.
Auto manufacturers, for example, were hit by a triple whammy: New safety and emissions standards increased the cost of vehicles, nine states raised taxes on car sales, and the banks and finance companies that fund dealers and 80 percent of consumer car purchases were paralyzed by the credit crunch.
“All of that coming in one year resulted in a normal cyclical recession becoming a deep depression in the auto sector,” said R.C. Bhargava, chairman of Maruti Suzuki, India’s largest automaker.
Some manufacturers are now begging the government to cut taxes on new car purchases or get old gas guzzlers off the road through a cash-for-clunkers program.
Mr. Modi was criticized in his first term for ignoring early evidence of a slowdown. After he won a sweeping re-election victory in May, many economists expected him to pass a short-term stimulus package and tackle longstanding issues like farm poverty and land reform.
Instead, he dealt the economy a blow with an unexpected tax increase on foreign investors, prompting them to dump Indian stocks and bonds. The rupee reeled.
More recently, the Modi administration has acknowledged the need for action. In addition to the tax cuts on Friday, the finance minister, Nirmala Sitharaman, recently promised that the government would step in to help automakers and speed infrastructure spending, and she has directed government-owned banks to make more loans. The government also reversed the new taxes on investors.
The textile industry, which employs about 45 million people and is India’s second-largest employer after agriculture, is emblematic of the country’s distress.
On an afternoon in early September, Tirupur’s market for wholesale, overstock and slightly defective clothing was deserted. Mr. Moses said that store owners and distributors typically traveled across India to place bulk orders for shirts, pants, dresses and fabric before the country’s September-to-November festival season.
“Now, people do not come,” he said.
The region’s spinning mills, which twirl cotton into yarn, are cutting production. Although the world price of cotton has plunged because of the increased American tariffs on Chinese textiles, owners say that yarn prices have also fallen, making it difficult for mills to profit.
At Dollar Industries, which has made men’s underwear for nearly half a century, a 4 percent decline in sales last quarter was a shock.
“I haven’t seen a slowdown like this,” said Gaurav Gupta, a son of one of Dollar’s founders, as he walked through the company’s plants. “For a customer who used to buy six pairs of garments, now he has come down to probably four.”
Still, Dollar’s Italian-made cutting machines continue to slice colorful sheets of fabric for undershirts and underpants, six days a week. About 100 workers sort the pieces and tie them into bales, ready for contractors who will sew them into finished garments.
Dollar has not laid off anyone yet, although it has cut work hours — and paychecks — by 10 to 20 percent. Mr. Gupta said his factories were switching to making thermal underwear for northern India’s chilly winters, and he hoped that the festival season would mark the beginning of a turnaround in sales.
Sambhu Karwar, a 22-year-old employee who smooths the fabric before it is cut, said the job was better than working in his family’s bakery in eastern India. Dollar pays him a monthly salary of 12,000 rupees, or about $167, and provides lodging and some subsidized food.
“It’s good living here,” said Mr. Karwar, whose brother also works at the factory.
The outlook is bleaker at Siva Exports, a contractor that stitches some of Dollar’s underwear.
Most of the sewing machines in the two-story factory sit idle. Siva’s owner, V. Murugesan, said he had to lay off about three-quarters of his tailors over the last six months after he lost his two biggest clients — clothing brands in Italy and France. He said he could not match the prices they could get in Bangladesh, where wages are far lower.
“It’s a buyer’s market,” Mr. Murugesan said. “Orders are very slow.” He urged the government to help small exporters like him with subsidies or other support.
Dollar said its distributors and retailers were having trouble borrowing money to finance inventory. The government’s lengthy delays in paying tax refunds to small businesses are increasing the cash crunch.
So Dollar is trying to step into the gap, allowing its partners to buy a few weeks’ worth of stock at a time instead of requiring them to buy three months of inventory as it did previously.
“We are trying to work in a different manner,” said Shashi Agarwal, Dollar’s senior vice president of corporate strategy.
With the cheaper rupee and the higher American tariffs on imported Chinese textiles that began Sept. 1, India has an opportunity to export more garments to the United States.
That’s the theory, at least.
But C. Anand, director of RTW Renaissance Asia, a Tirupur garment maker that focuses on exports to the United States, said that India could not compete on price alone against exports from Bangladesh or Vietnam or free-trade zones like Jordan or Haiti.
“You have to bring innovation to the market,” he said. For example, he said, his company has devised a way to process the cotton yarn and fabric for an American company’s work uniforms so that they can withstand at least 50 washings without significant wear.
Innovation may not be enough, however.
Vijay Varthanan, who was once a quality control manager at a garment factory and now runs a small grocery store in Tirupur, predicted that times would get worse before they got better.
Sales are down by about 50 percent in his shop, he said, and a lot of people are buying food on credit. Mr. Varthanan said that many workers would head back to their home villages next month for Diwali, India’s biggest holiday — and not come back.
“Everything is totally down,” he said. “People are just waiting for their Diwali bonuses.”
Ayesha Venkataraman contributed research from Mumbai, India.