[Marketing Mantra] The Myth of Indian Economy and The Changing Consumption Be...

[Logu]

I’m starting to pen this post with an abstract note of an article published by one of the reputed marketing consultancy company from the desks of its global economic research wing. The crux of the article claims that the global investment capital supply will shrink in couple of decades from now due to the changing consumption behavior at micro level and the amendments that developing countries like China and India are making at macro level, which boost and motivates the spending behavior among its countrymen. 

With this context, I'm putting forth my thoughts w.r.to the Indian scenario in this article.

 We all have identified our country as the toughest economy region in terms of spending behavior; we have seen our income to expenditure ratio at lower scale compared to our income to saving ratio, this behavior saved the country during the crisis times. Contrastingly, the modern ages have inculcated a spending culture which is very strange to our country, leveraged just because of increased spending opportunities. For eg: Twenty years ago, you can find a person at his 35 years of age enjoying a good livelihood with a bi-cycle, a B/W television and an own house, but today we can't see a 35 years old man living just with the items listed above. He is sophisticating himself with so many things for upgrading his lifestyle day-in and day-out. Flat Televisions to LCDs and LEDs, top-loading semi-automatic washing machines to fully automatic units, Desktop Computers to Laptops to Tabs, Maruti Swift to Volkswagen cars, ever changing mobile handsets, tight shopping schedules and eat out plans, frequent flying to off-shores, and so on. This kept the economy fueled with the flow of money from savings yard to the market place. Thanks to economic rehabilitation happened in the year 1991 which leveraged the citizens to enjoy with much of chances and opportunities for spending what they saved and earned during his life-time itself without any carry forward.

But, there exists a simple devastating logic behind this behavior which will lead the country to a point when the savings in banks and other financial institutions will fall down consistently leading these financial bodies to be more stringent in lending money for any projects under any category as capital due to non-availability of sufficient monetary resources. This will leave the economy to go for a slow down. Mobilization of economic activities will go for a halt. The scope for earnings will get reduced leading fall in purchase power index. This behavior will also lead to the following situations,

• ·         As the demand drops down, the production will be brought down leading to downsizing of employment and continues as an avalanche from one sector to other
• ·         There will not be any carry forward of assets, properties and wealth from one generation to another generation. (the current generations mostly enjoys wealth accumulated by their ancestors)
• ·         Countrymen has to depend on government for social welfare after their retirement period
• ·         There would be a disparity state that may arise among the young crowd of next generation
• ·         Consistent increase in the unemployment rate of employable population would prevail
• ·         India, at the current scenario is no more a country depends on agriculture for GDP, services sector especially trade related business contributes more than 30% of GDP. When fund flow reduces in the economy, fall of trade sector will start traveling on the downhill.
• ·         Funding on R & D for new technology will fall down leading to scarcity on scope of new developments.

Moreover, when the consumption behavior skews towards heavy spending rate, then inflation rate will shoot up consistently leaving the burden on the lives of middle and lower income group citizens. Considering the current economic scenario of the country, to curtail the inflation RBI keeps increasing its repo and reverse repo rates (which are increased by 0.25% to 6.50% and 5.50% respectively as on 27^th  January 2011) to encourage savings as a part of monetary policy. On the other hand certain government policies and schemes at central and state level are traveling on the opposite direction with lot of freebies offered to the people including, under priced food items through PDS, free lands, free houses, free medical policies, television sets and etc, which is against monetary policies during the times of severe inflation. These schemes are leaving the citizens with more liquid cash for spending it, which increases the demand of commodities further to inflating the prices of the same.

Now you can understand how our country's policies are networked in a bad shape.

What people requires is not the free-lunch but the facilities to earn his bread under the roof of quality, healthy and growing economic environment with more opportunities to earn and make their life better.

We all well know that economy is a well knitted web in that every node needs to be balanced properly. Even a small disturbance at any one node will lead to havoc at all the nodes in the country. There are wide chances available to save the economy from this projected scenario with streamlined and centralized economic and welfare policies executed in the future as and when demanded by understanding the crux of the situation.

FYI: Most of economic activities started across the globe in the mid of 20^th century are just the restructuring or reconstruction of infrastructures destroyed during the world war-II. These activities have fueled the global economy with lot of money flow in it.

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Posted By Logu to Marketing Mantra at 2/01/2011 08:54:00 AM