As we all know S. Gurumurthy is a well known Economist, Thinker and an excellent writer. Many of us used to follow his articles published in the Indian Express. And of course many of us are his critics for several reasons. But his radical thinking and his brilliant analysis drags our attention to him. Yesterday was the Day 1 of his three day lecture series on the ‘Indian Economic Model’ being jointly organized by the Bangalore University and the CESS (Centre for Educational and Social Studies) in Bangalore. Here are some of the interesting excerpts from his talk. I have tried my best to extract these from the points I made. Some of it may be inaccurate but I have tried to be my best in projecting the right information.
Day 1: The whole discussion was on the Global Meltdown and on the American economic model.
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We (India) were the super power during 1700s. Our GDP share to the world was approx 21%. China over took us during 1600 and we over took China again in 1700. Where are we now?
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We (India) follow American system. We borrow ideas from them. We do not think original and contribute to the system. I speak about America because the whole world is dependent on America and they are adopting ‘proven’ American models. We are the carbon copies of others thinking.
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Indianness of economic development is a concern. We do not think because we do not read economics. We have stopped reading good books on economics. Students never read good books on economics and are not interested in economic development.
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None of the top economists in the world could arrive at the reason for the recent economic downturn. And none were hence able to come up with a proper solution. Quoted examples from the 11th May article in ET, Economist magazine on the global meltdown, other articles from FT.
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America is a stock market led model. 55% of the population invests in stock market. Whereas Japan is a bank led model and only 9% of the population invest in Stock market. In India only 2.5% of the population invests in the stock market. We do not risk and we want to be safe.
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One line answer for the downturn is the “Families bankrupted, they were made government dependent and corporate were enriched”. The family savings in America used to be 70% before the corporate took over. And in 2005, the family savings is reduced to 9.5% and now it is in negative.
Corporations took over the family savings in 1996 and by 2006 it had crossed 512 bn$ compared to the family savings of 90(?)+ bn$.
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In America, families have collapsed compared to Asian countries. Divorce rate is 55% (second marriage divorce rate is 60 %(?) and the third marriage divorce rate is 75%). 27% of the American population live single. Hence there is no question of savings. In Asian countries families are the institutions. We save money to take care of them. In America, Government takes care of the families. They give money for them to survive. They give mortgage loans, they ask people to borrow money with high interest rates.
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Japan reduced their interest rate to make its population spend money. The interest rate got reduced to 0.8% and still people were saving money than spending. Government had to come up with the interest rate to deposit the money in the bank. And Japanese continued to deposit money in the bank. They have the highest cash reserves that cross trillions of dollars.
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Jagadish Bhagawati, the guru of Paul Krugman, was invited to India to suggest on the economic model by the Finance Ministry. (I don’t remember when). And he had given a 72 page document on the same. The two interesting problems shared were the following:
- Indians save unnecessarily. More than what they need to spend.
- Housewives are stingy and they don’t spend.
So more efforts were put towards making people spend. Attract global brands so that the housewives will get attracted towards those products and spend more. But efforts were not enough as the housewives continued to save rather than spend.
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‘The idea of family’ is very strong in India and hence we save money. Savings in India is close to 35-37% and out of that the household savings are close to 75%. In the next 10 years approx 1.7 trillion will be spent on infrastructure and all the money will be generated by the household savings. This will drive not only Indian development but also the global development. We will not borrow any money from outside.
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In America every individual will have close to 10 credit cards. They will be offered to take loans. For the population of 220 million (not sure of the year), there were about 1.2 billion credit cards and the debt amounting to trillions of dollars. American mortgaging is now called as ‘Jingle’ mortgaging.
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American borrowing is close to 1.5 trillion dollars now. More than Americans investment in India, we have our savings in America. In 2011, America’s total debt is equal to its GDP. And in UK that follows American model, the debt is equal to 4 times its GDP. The reason is the product of culture and decline of families.
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We are asked to follow such system for 20 years and we have come up with no other alternatives.
(End of the lecture)
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The interesting observation for me was on the 'idea of family' and the savings pattern with respect to the same.
Srik
3 comments:
Interesting facts and figures Srik,
Of course the interesting observation as you have made is the savings pattern in families. I feel its illogical to save more in modern India. I think the worst possible thing one can do is to save more than what we can spend! The whole thing sounds so idiotic!
The only sector where I want my savings and insurances would be in the health sector. And in India unless in exceptional cases, even that is not very costly.
Also what makes a big difference I think is travelling, working and interracting with different kinds of people. Which we Indians dont do very much.
With respect to loans, are loans the only way to progress? I feel loans are a burden and frankly try and avoid them. I feel there is a lot of undue importance given to loans these days.
Doc Manjunath
Gurumurthy has highlighted probably the most critical problems in India, namely, the intellectual inferiority of literate Indians. When he points out that Indians do not read books, he is right on target.
It is a profoundly sad thing that a civilization that values learning so much only for a few has never inculcated the habit of life-long learning for all. Maybe, modernization of Indian society will change Indians and instill a culture of life-long learning for all in the next few decades.
It is not clear to me why Gurumurthy is so critical of the American model. It would be more helpful if people like Gurumurthy refrain from criticizing any model.
It will be more persuasive if thoughtful people in India devote their talents to creating a genuinely Indian Model of development that adapts and adopts successful models from everywhere.
The focus of thoughtful people in India on criticism may underline the very problem that Gurumurthy is bemoaning, namely, lack of original thinking. Sad, indeed.
Gurumurthy sir, it is an thought provoking lecture to me . I seek clarification from u . Does the model support for savings or prof Jagadish Bagawathi's idea of enhancing the consumption spirit of Indians.
Nagesha G, Student of Economics
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