For years we have been seeing the outrageous consumption behavious of the US consumer, who was forever spending money borrowed from the future and rarely saving anything. Wrong though it seemed, this is what kept the global economy on a growth chart.
Japan also benefitted from this consumption behaviour for a while when it started selling to the US. However, despite the period of prosperity that the country went through, the average Japanese continued to save instead of spending and soon the Japanese economy came to a standstill.
In recent years, India has also gone through a period of high growth by selling to the global consumer and we had just started seeing the same translating into growth in domestic consumption, with the average Indian going out and spending more. In the recent past, this led to a rapid growth in the Indian economy with almost all sectors benefitting. With those involved in the high growth export related sectors earning more, we saw more houses being bought, more money being spent in malls, more consumer goods purchases, more leisure travel, more investments and in general more of everything. The same had also started to have a trickle-down effect in the economy and individuals working in the related sectors also saw period of super-normal growth.
This cycle has just got disrupted. Layoffs and salary cuts have now started in the sectors that heralded the start of the India Growth story. While most of the developed economies will have to go through this recesssionary period till a new technology evolves and another bubble starts; we Indians have a choice.
Indians have traditionally been savers (thanks to the lack of a social security system and years of poverty). However, it's consumption that aids economic growth and not saving. To come out of this recession real fast, we need to ensure that we continue to spend and consume. The demographics of India, unlike the world, is extremely strong and as per estimates, we shall continue to be a young country at least till 2025. This essentially means that a larger proportion of our population would be economically productive, unlike some of our more developed counterparts and we would also have more individuals in the consumption stage of their life cycle.
This essentially means that India can continue to grow on the back of domestic consumption and reduce dependence over other nations. What we need to do is to not cut our spending too drastically and keep up the consumerism. The more we spend, the more we earn.
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3 comments:
Good thoughts.
There are few major differences between the state of USA during its growth and the growth in India.
For one, the overall real wealth of Indians per capita is much lower. As such effects of economic blowout will be more brutal in India: the section of population able to generate and buy high end services will become much smaller.
Two, the disparity of income divides India into three parts. The lower income class which did not benefit at all from the ecnomic bubble, is the largest section and cannot look past the necessities of daily living. The upper class, which does not get affected at all (see http://www.time.com/time/world/article/0,8599,1854160,00.html) The middle urban class, which saw the best increase in its standard during the bubble and stands to loose the most when jobs and service industry disappears in this ecnomic downturn.
The way Americans sustain durig this kind of times was by massive borrowing: both on an individual basis and by the US govt. Can middle class Indians afford to do that? Can they get adequate credit for such situations? More importantly, inflation bottoms out in US during economic downturns. Will that happen in India and makes things cheaper? How can people consume more if majority have no change in jobs, cannot get credit to start new endevors and inflation eats away whatever little extra they make?
Hey Sarika,
Interesting. But there are different spendings and not all are equal. Meaning there is infrastructure spending which has a different payoff compared to consumption spending.
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