The financial Tsunami is far from over, every passing day we are bombarded with news and analysis on the future outcome of the slowdown. The ripples are being felt worldwide and claims of economies being immune are now things of the past. I still remember the advice given to me by one of the professors in college “Curb your desire for consumer goods as their value starts depreciating the moment you take them out of the showroom (shop or outlet)”. He now seems to be correct as globally it is the reduced demand of consumer goods that is playing the culprit. The cheap money policy gave way to easy credit which in turn resulted in creation of artificial demand for property, goods and other items. So what happens to all those fancy, materialistic desires of our life? Does it mean to curb our spending habits especially for consumables?
Now Let us have a look at the flip side of consumer goods industry. One of the key drivers for growth in these developed countries was the huge consumer base. This created huge demand for consumer goods and lead to the growth of both the industry and the economy (of course along with the growth in financial services, technology etc). Now what happens to India? The answer lies in our demographics. More than 50% of our population currently falls in the age group of 18-45 and by 2020 we are going to be the youngest country in the world. This is huge human resource compared to the fact that other countries are soon ageing out. Soon we would have the largest cost effective workforce available and that too across most areas. It is this resource which has the potential to thrust our economy to unsustainable heights. This is where the consumer goods industry fits in by catering to the needs of the huge consumer base we have created (pretty much similar to what had happened to developed countries). We will be able to attain a growth similar what the ‘baby boomers’ had done during 1980s and ‘90s for US and other European countries. To curb our desires by not giving in to consumer goods does not lead us anywhere. The answer is to equip and empower yourself to achieve what you had always desired in life. Get the best of those Lamborghini’s, Merc’s, Gizmo’s, Gadgets, the best of home appliances but just keep in mind one thing “earn it and get”. So irrespective of whatever effect this Tsunami has on us one thing is for sure, that in long run we are headed in right direction. Just be prepared and never let the desire in you die.
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hi,
ReplyDeleteAs per my understanding the underlying thought of your blog can be summarized as below:-
1) Slow demand is the main cause of economic slowdown.
2) Hedonism is the major driver for creating economic growth.
3) We should always follow "earn more spend more" to tread the path of the developed nations and be a part of the nation building exercise.
Well if that is what you intend to convey, then I would like to defer from your view point. Lets see my view points in the same flow as written above:-
1) According to my point of view slow consumer demand is not the cause or the main culprit but the aftermath or effect of long prevailing human greed. Actually it is a negative spiral and it is very hard to say which follows what. Human greed compelled the architects of Wall Street to develop complex derivatives which created an unprecedented wealth in the American society. The society at that point never bothered to think about the underlying truth behind this paper wealth. They were more concerned about transgressing their lifestyle to the next level by sinking in blindly in consumer spending with huge amount of windfall gains from stock markets.
2) Secondly hedonism cannot be the main driver of economic growth of our country. When we talk about economic growth we should encompass growth across all sections of the society, a comprehensive as well as sustainable growth. Hence in a country like India where still 2/3 of the population is dependent on agriculture there cannot be a second major driver other than agriculture. If we talk about US economies, the huge consumer market which we see presently in US came after there was an agricultural boom which made the economy self sufficient in terms of food and then it moved on. Still today the farmers in US gets the maximum benefit from the govt. of US because the authority there thinks that it is still one of the major pillars of their economic growth.
3) India is a developing economy, the basics of economy teaches us that a developing economy should be in a savings mode and invest more on infrastructural development and objects of future growth so that it can reap the benefits and move ahead to the regime of a developed economy in the future. A “earn more spend more” society can only add to the inflation blues of the Indian economy and prove a roadblock. A spiraling inflation cripples economic growth by compelling the government to introduce economic slowdown measures like curbing the money supply thereby halting the growth journey to sustain inflation and save the weaker section of the society. Even the share market index also behaves in a negative way with inflation. Hence a spending society in my opinion can never help an economy like India which has still around 25 % of population under BPL.
So to conclude I can say if India has to tread the path of development and achieve the status of developed nation in the near future then it has to focus more on the basic infrastructure, ailing healthcare system, crippling education system and should try to increase the percentage contribution of agriculture in the Indian GDP. Till that time hedonism and extreme consumerism can safely take a back seat from economic growth point of view. Hence a growth in savings rate and not growth in consumerism should be taken as the driver for Indian economic growth.