Bharat could save India from US recession
Wednesday, January 2, 2008
Fears of a possible US recession following the subprime crisis and the repercussions this could have across the globe have cast a shadow over economic forecasts for 2008. Despite repeated interest rate cuts, demand continues to be slack in the US with retail registering disturbingly low sales over the recent festive season.
Persisting economic uncertainty, which leads to deferred consumption, can put a further brake on the slowdown and make recession a self-fulfiling prophecy. And if America, the world’s biggest spender, stops buying the world’s producers ? of everything from cars to clothes, computers to camcorders ? will suffer.
Even as he predicted a 9% growth for India in 2008, finance minister Chidambaram sounded a note of caution about the fallout of America’s economic malaise.
Indian exports have already been badly hit by the appreciation of the rupee against a weakening dollar. How can the Indian economy as a whole, and not just the export sector, try and insulate itself from depressed demand in the US? The obvious answer of course would be to seek and develop alternative markets, which so far have remained relatively untapped. Africa could be one such market for India, particularly for the pharma industry. But a market with even greater potential lies much closer to us: the nascent market of the so-called ’other India’ of rural poverty and backwardness, which stands in stark contrast to the urban glitz of shopping malls, and IT, and a soaring Sensex.
Can the over 250 million Indians who officially live below the poverty line (ie with an earning capacity of just under Rs 600 a month by 2004 prices and a daily calorie intake of between 2,100 and 2,400) and who constitute a population almost as big as that of the US as a whole be turned into a viable market for industrial goods? To think of people at the lowest subsistence levels who have to spend over 90% of their income on food as even potential consumers of manufactured goods might seem like a cruel and obscene joke. But in fact it is not to see them as potential consumers that is the real obscenity, condemning them forever to an existence of self-perpetuating penury.
As the bestselling book of that name has pointed out, it is indeed possible to tap the wealth at the bottom of the pyramid. Indian manufacturers of products ranging from soaps and detergents to cigarettes have been doing so for years, ever since rural marketing became a B-school buzzword. The proof of the market lies in the selling. If an MNC can profitably sell a single cigarette to a villager in the most backward hinterland of the country, can other producers of more useful, durable and desirable goods not do the same?
So far, the cause of so-called ’rural uplift’ has largely been left to the government and its various poverty alleviation programmes, such as the 100-day work guarantee scheme. Regrettably, such deployment of state capital has been criminally inefficient. Rajiv Gandhi’s once-shocking remark that of every one rupee spent by the government by way of relief measures only 16 paise reaches the targeted individual has now become a commonplace. Indeed, as the parasitic tribe of petty officialdom has grown, the delivered benefit has been scaled down to a mere 5 to 6 paise.
Can private capital ? not for reasons of altruism, but for legitimate profit ? penetrate this ’market’ more efficiently than state capital can in the form of siphoned-off handouts? Could, for instance, Tatas’ Rs 1 lakh ’people’s car’ inspire a country-cousin counterpart in a Rs 900 ’people’s bicycle’?
Could Usha produce low-cost, instalment-plan sewing machines for aspiring rural seamstresses seeking a livelihood? Could someone make and market a 400-rupee computer for village schools?
The success of grameen banking and rural telephony, to name only two areas of successful ’barefoot’ marketing, has shown what can be achieved.
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