Spend more, Save more

I have never ceased to be astonished at the moaning of groaning of Left intellectuals over the boom in consumer durables. India’s consumption of such durables is pathetically small by even Third World standards. Brazil (population 160 million) produces thrice as many cars as India (population 950 million). A single world-size TV plant has a capacity of 2 million sets, but only recently has India’s entire consumption of colour TV gone beyond that level. Indians are prudent, price-sensitive spenders. Yet Left intellectuals claim this is consumerism running amuck.

The same intellectuals, mind you, find nothing consumerist about flying to Tokyo or Rome to attend a conference on the evils of consumerism. Each such trip will cost the equivalent of several TV sets and washing machines. But the intellectual class believes that the goods it consumes (like foreign seminars) are merit goods, while those desired by the unwashed masses are unworthy.

This is unfair criticism, say Left intellectuals. Ours is a poor country where it is imperative to save and invest instead of going on a spending spree. Advertisers, they say, are persuading people to buy all sorts of goods they do not need. We need a society that saves, not one that splurges.

That may sound like noble rhetoric. The problem is that it has no basis in fact at all. Yes, Indians have been buying more consumer durables. But they have also been saving more than ever. Washing machines and TV sets are not coming at the expense of savings. On the contrary, they are accompanied by higher savings.

Take a look at the accompanying chart giving trends over the last decade. This has been the period of the big upsurge in consumer goods buying, and business journals are chock full of articles on the rising consumer class. Yet in this very decade the rate of household savings has shot up from 14.6 per cent in 1985-86 to 19.5 per cent in 1995-96.

Economic trends are rarely uniform, and this is evident from the chart. The savings rate has zigzagged up and down, and so has the growth of consumer durables. But a close look at the pattern of zig- zagging destroys the thesis that Indians have gone hedonist.

The Rajiv Gandhi years were castigated at the time as heralding the rise of crass consumerism. Yet the chart shows that the household savings rate rose rapidly in this period, from 14.6 percent in 1980-86 to an all-time high of 20.5 per cent in 1990-91. More TV sets and Marutis went together with more savings.

Then came the financial crisis of 1991, and the consumption of consumer durables plummeted for two years in a row (by 12.5 per cent in 1991-92 and a further 0.7 per cent in 1992-93). But did this spur savings? Not at all, savings also plummeted, from 20.5 per cent in 1990-91 to 17.7 per cent in the next two years in succession. Less TV, sets and washing machines went together with less savings. In a time of austerity, people sought to protect living standards by a temporary reduction in the purchase of durables as well as savings.

The economy recovered by 1993 and then went into high gear. The production of consumer durables shot up, almost doubling in the next three years. Was this imprudent consumerism? No, household savings rose from 17.7 per cent in 1992-93 to 19.5 percent in 1995-96.

Some people may by puzzled by this. Is it not paradoxical, they ask, that higher savings go with higher splurging on cars, TVs and washing machines?

Not at all. The economy has been growing faster in the last decade, save for a couple of difficult years caused by the 1991 financial crisis. Incomes have risen, and much of this has taken place among families that earlier were too poor to afford consumer durables. We keep hearing about a new consumer class of 200 million people, but where did these come from? Did they descend from heaven? No, they are promotees from the ranks of the poor. And as their incomes have risen, so has their demand for the better things of life. Increased incomes enable them to save more and buy more at the same time. This is not hedonism but upward social mobility among prudent citizens.

Why then are Left intellectuals upset about this? Because they believed that liberalisation of Rajiv Gandhi and Narasimha Rao would be disastrous. They cannot cope with the simple truth that liberalisation had raised living standards and so enabled millions to buy durables. Instead the intellectuals pretend that the reforms have engendered a hedonistic buying by a favoured middle class.

The facts are otherwise. Three decades of socialism kept Indians poor, and there was little demand for durables. Then came the mini-liberalisation of the 1980s and greater liberalisation of the 1990s which raised hundreds of millions above the poverty line. Most news paper articles talk only of people below the poverty line, not above. But (using the Lakdawaia committee methodology) the number of non-poor rose from 258 million in 1973-74 to 555 million by 1993-94. Confirmation comes from the NCAER survey of households, which suggests that the ownership of watches now exceeds 550 million.

This is good news. The doubling of the numbers of non-poor is the fundamental reason for the consumer boom, and represents social progress that must be welcomed. True, it is not good enough. We should not have 330 million poor people below the poverty line still. But note if we succeed in pushing those 330 million above the poverty line, we will experience a further explosion in the buying of washing machines and TV sets.

What do you think?