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Prime Minister PV Narasimha Rao with then finance minister Manmohan Singh, and other cabinet colleagues and senior officials at the Delhi airport, before leaving for a visit to Russia in June 1994
The 1901 novel Buddenbrooks: The Decline of a Family by Nobel winner Thomas Mann is a story of how ambitions and fortunes change over generations. Economists sometimes call it the `Buddenbrooks’ effect.
The first generation toils a lifetime to earn money, buying means of comfort and securing a better future. The second aspires to climb up the social ladder by occupying positions in bureaucracy and politics. When the third generation comes along, social prestige and opulence become a given. So, they look for a life of music and arts, worrying little about the rather earthy anxieties that occupied their ancestors. India, Asia’s third largest economy, after China and Japan, is a veritable jumble of all the three generations. A quarter century of economic reforms mean some have made their millions, while millions continue to earn their keep from farms but their children aspire to match upscale lifestyles.
At the level of the household, the visible face of the 1991 reforms is the quest to beat poverty through enterprise. It is sometimes said the elephant, a popular metaphor for the Indian economy, has begun moving.
UPWARD MOBILITY
The average earning of an Indian, measured as per capita income, has risen nearly 15 times since 1991 — from Rs 6,295 to Rs 93,293. Even after adjusting for inflation, incomes have jumped five-and-a-half times, mirroring rising spending power.
Desirable jobs for the young have expanded from the fields of medicine, engineering and government service to working in coffee shops and large retail floors. Sixty-five-year-old Jai Singh took a giant leap of faith 20 years ago when he quit his job in an electrical equipment store in central Delhi and started as a newspaper vendor in east Delhi.
This was an era when softer loans, easy land-buying rules and a string of cooperative group housing projects enabled hundreds of middle-class families to own apartments in metropolitan cites.
When the families moved in, captive business opportunities followed. “These societies (apartment blocks) were a market for English newspapers,” Singh told HT. “Sales of business dailies went up in particular, despite their higher issue price. Our sales incentives were hiked,” the last-mile delivery man said.
It may not be statistically rigorous, but the correlation between growing appetite for business information and rising spending capacity is too obvious to miss.
BORROW, SPEND
The Reserve Bank of India (RBI) opened up the banking sector to private participation in 1993. This one move was like unclogging a bottlenecked financial services highway.
The RBI wanted to infuse competition, raise efficiency and productivity, while making the consumer the focus of banks.
Private banks, such as HDFC Ltd, ICICI Ltd and UTI Ltd (now Axis), set up shop. Heavy dog-eared ledger books gave way to an era of digital finance. With ATM machines and debit cards, depositing or withdrawing cash could be done on-the-go, a huge transformation from queueing up before tellers. This also dismantled social barriers as an ATM machine does not distinguish between a CEO and a daily wage earner.
Forced to tone up, public-sector banks computerised their services too, but had to contend with strikes from employees’ unions, who felt threatened.
“Technology-driven solutions are the way forward. It saves money, delivers quicker services and also helps bridge the digital divide. A bank account is like financial liberation, giving a sense of empowerment to those at the bottom of the pyramid,” said SS Kohli, former chairman and managing director of Punjab National Bank and former chairman of IIFCL, an infrastructure finance company. Alongside, faster access to loans opened up private enterprise. Singh, the newspaper vendor, for instance, remembers borrowing ₹4 lakh from a bank to pay for the engineering education of the second of his three daughters and for expanding his business. “Our elder daughter is an MBA, working for an MNC in Gurgaon. The younger one is working for a publishing house and moving overseas shortly. My daughters are my lifetime investments,” he said.
Manmohan Singh at a press conference in 1991. (SN Sinha/HT File Photo)
Some, however, learnt it hard.
Thousands of small savers allegedly duped by promoters of a deposits-collecting firm Saradha in West Bengal a few years ago is emblematic of a bustling cash economy that still has millions outside the formal, banking sector.
The current government’s Pradhan Mantri Jan Dhan Yojana aims to bring banking services to every adult. Arguably the world’s largest financial inclusion scheme, it was launched in 2014 to give access to formal banking services to a vast majority of India’s poor. About 200 million new accounts have been opened so far, with a combined deposit corpus of more than ₹40,000 crore.
For those who still lack access to formal credit, the only way to seek a better future is to loan money at exorbitant rates from private lenders.
“Kya bachta hai (I have no savings),” said Sikander, a roadside tea-seller, who makes Rs 15,000 a month.
As RBI governor Raghuram G Rajan wrote in a paper “India and Economic Freedom”, that in order to take advantage of expanded opportunities in a market economy as an adult, children first need access to nutrition, healthcare and education. “Moreover, going forward, she has to have access to finance so that the lack of wealth does not hamper her,” Rajan stated in the paper written while he was at Chicago University’s Booth School of Business.
For small informal borrowers such as Sikander, a formal, tenured loan from a finance company is also a ticket to a world of financial services. Besides freeing them from the clutches of private money lenders, it also gives them a “credit score” that vouches for their credit worthiness.
“Nearly 70% of our customers do not have credit score and they don’t have the access for loan. We are trying to educate the customer. As soon as they pass the first loan, we help get them their first credit score,” said Tomas Hrdlicka of Home Credit India Finance, a Czech Republic-based company offering small sized loans in smaller Indian towns.
GROWING UP
Indian industry is a perfect example of the text-book “infant industry” model. An Indian company, Tata Motors, owns and runs Jaguar Land Rover— one of the world’s most iconic auto brand.
In 25 years, the infant has grown up. No longer protected in a state-guided cocoon and surviving global competition. From the iconic software industry that has fuelled middle-class aspirations to conventional brick-and-mortar companies, there’s an entrepreneurial success story out there.
“The early 1990s were the first heady years of India’s post-reforms era. The opening up of the economy meant that India’s manufacturing sector had to stand up to the multinational corporations and from cheap Chinese products as import barriers were lifted,” said Anil Rai Gupta, Chairman and Managing Director of Havells.
Havells, which stands shoulder-to-shoulder with the likes of GE and Phillips in the global electrical goods markets, now has group revenues of about ₹5,500 crore) with brands such as Havells, Standard, Crabtree, Reo and Promptec in its bouquet. “This required unflinching commitment to quality control,” Gupta said.
Most experts reckon that India is now in the “age of high mass consumption” characterised by widespread use of consumer goods, mirroring economist Walt Whitman Rostow’s theory of the stages of economic growth expounded in 1960.
Rural households now pay for most goods and services usually associated with urban lifestyles -- from cars and microwaves and laundry services to air travel and even out-of-home dining.
A recent government survey showed that rural households now spend about 21 per cent of their monthly service-related budget on eating out compared to 22 per cent by city dwellers, a sign of converging lifestyles. Former Coca-Cola Company executive Neville Isdell, when he came out of retirement to become the beverage giant’s chief executive in 2004, surprised many by including India among his first international visits. The tour had an important lesson: summers in India were crucial to offset weaker consumer demand in the home markets of North America.
STILL HUNGRY
Even as India posted stunning growth rates post-reforms, averaging 6.8 per cent between 1991-92 and 2015-16, its poor socio-economic indices tell a different story.
The World Bank reckons that India is home to nearly a quarter (270 million) of the world’s poor. Indian estimates of poverty range from 270 million to 450 million people. By most standards, India has been a “welfare laggard,” despite the massive strides in overall growth. India’s per capita income is set to cross ₹1,00,000 a year in the next few years. The figure gives an idea of the standard of living of the people, although it hides a stark reality: much of the growth in income may have been driven by the richest Indians.
In 2015, according to Forbes, the 100 richest in India had a combined net worth of $345 billion or ₹23 lakh crore, representing 18 per cent of the India’s GDP. Yet, official data also shows that almost 200 million people in the country are malnourished.
With a $2 trillion GDP, India may be counted among the richest in the world, but it still has a long way to go before it can reach food into every mouth.
Nobel laureate Amartya Sen has long argued for expanding both “hard” and “soft infrastructure”. As India’s economy expands, it will need a skilled workforce to support the expansion.
If India’s billionaires are routinely weighed on an international scale, the poor deserve the privilege too. And it cannot happen without reforms and more reforms for many years at a stretch.
Text and research: Gaurav Choudhury
Graphic: Anand Sinha; Web presentation: Amit Mathur
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