The more we spend, the more we earn

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.