The Growth Drivers

The following are the result of a class discussion. So i thank Ashok, Prasanna, Vijay, Francis and JK for chipping in. Also, our faculty for holding it.

We all know that the next growth driver for our economy, as touted by experts, is the finance sector. Well i had the same feeling. And was pretty much firm with them until i had this discussion. The Indian Financial Sector is expected to fuel the economy at 9%. Its the availability of smart man power and a government that supports the cause, that would have helped the sector boom.

All the steps taken before the Global Financial Meltdown, pointed in the same direction. The government was taking all steps to make Mumbai the next hub for the globe.

With the meltdown in place, the priority of the government changed. However, even the articles that were claiming the sectors as growth drivers stopped getting published. It was as if the whole world had gone wrong!!

Anyways, the faculty took a different standing. He said that financial sector cannot be the next growth driver. Rather it should never be!! 

His funda was clear. That for an economy to grow continuously, the growth should come from primary and secondary sectors. The growth should be in real terms. Tangible, hard products should be added to the economy.

The financial sector just grows on the books and in the banking systems (95% of money is E-money across the globe), in reality hardly any tangible stuff is added to the economy. And the example of US of A fitted in just right. The US economy that has been growing on the back of the financial muscle, has been adding the deficit of the budget and the unfavorable balance of trade, unchecked. The fact that dollar is the preferred currency for foreign trade across the globe makes it possible for the US to do so, too.

But then India is not so lucky. The INR is still used domestically and this will not allow the government to print as many bills as it wants. And therefore, the Indian growth will have to come from primary & secondary sectors.

Would like to know your take on this.

Consumerism... The Crippling Factor...

Ronald Regan is considered one of the most successful US president for the Economic measures he took. When Regan took over White House, he was left with an Economy which was on the verge of an Economic Downturn. To revive the same, he kicked in the habit of consumer credit. Thus started the fantastic rise of America as a Consumer Nation. The Americans consumed whatever the World produced. Regan was hailed as a great President and an Economist and thus the term "Regonomics" was coined.

What the world never imagined were the pitfalls of this. No individual can afford to spend more than what it earns. Imagine a whole nation doing it!! The saving of the Americans went from 25% during the starting of Regan period to -2% by the end of 2007!! The Americans, however, managed it seamlessly because Dollar was and still is the Currency for International Trade. It gives America the power to print as many green notes as it wants.

The current crisis, where-in due to a downturn in a particular sector of the world's greatest economy (housing in this case) can cripple the whole system and send shock waves across the globe, has torn apart the mythical success of "Regonomics". My belief is that had Mr. Regan looked at a longer and a more difficult way of solving the problem, America would have never faced this, and the World would have not seen a crisis like this.

What We Indians Need to learn...

Of late, predictable more so after the IT boom of 2000, the Indians too have started liking the taste of consumerism. The corporates, the banks, the retailers, the families even the finance minister, everybody wants more. More of everything. The corporates want more profit. The Banks want to give more loans. The Retailers want more footfall conversion. The Families want more luxury and the Finance minister desperately wants more economic growth. So what are the young Indians doing?? Consuming. And consuming more.

It is quite unfortunate that we have come to this stage. From a nation that was under a foreign dominance 60 years ago to a nation that wants to compete with the world economy giants today. I dont mean that we should not compete with them for the economic growth. But why choose the path that they have travelled and fallen into the pit? We Indians are smarter breed, and I am really proud of that. We have shown the world earlier that there is a different way to do things, by choosing Ahimsa over violence and getting freedom. And we can do again.

I wish I knew the answer, as to how to keep the economy running, without consumerism. But anyways, I believe that its about time that we Indians gave a thought on the reckless spending habit that we have developed of late.

I wish that people who read this piece do put in their thoughts on this, as the above are purely my views.