What’s happened to the Indian economy? From an aspiring 10% growth, we are struggling to do half of that. The mood is down. Consumers are not buying. Household savings are at a low. Corporates are not investing. Gold prices have fallen. Real estate is still comatose. Just the stock market has the steam to keep rising higher. Clearly, there is something deeper to this story—what’s going on with the Indian consumers, savers, investors and entrepreneurs? And why is the market up, when data on consumption, spending, confidence, jobs and growth shows only gloom. On one side, the reasons for this skid off the growth path are said to do with demonetization, a botched GST, the persistent bank NPA problems, the shadow banking mess and hardening of rules. The other argument looks at this being a result of an attempt to switch the Indian business model towards formalization. Whatever may be the reason for the skid, the result right now is a slump in the mood of the economic participants.
A friend who runs a small business was hit by a series of events post the North Atlantic financial crisis of 2008. The crisis wiped out a large chunk of the overseas market, hitting his business badly. Next, a series of poor business decisions and external events prevented him from recovering in the next few years. Just as he was getting it back together, GST (goods and services tax) compliance and bribes for refunds dealt the next blow. Thinking that the end was around the next quarter for many years, he got into a debt trap with unpaid dues to banks, suppliers, family and friends. The only way out of this tight financial corner was to sell some land bought more than a decade ago, the price of which had gone up exponentially, with lakhs now worth crores. The sale will more than clear the debt and then leave some capital for restarting the business or just retiring. But one year later, he remains in the market looking to liquidate the land. This story is a text-book example of why real estate is such a clunky, and sometimes dangerous, asset to own, maintain and dispose, and why it is a poor asset for an emergency bail-out situation.
Event one: I’m buying something from an Apple store for a favourite nephew. I’ve just used my credit card to make the payment. I’m asked to show an identity proof, which is then photocopied and the paper kept. Why, I ask. The card companies want us to do this so that stolen cards are not used. At the other check-out station, a man slaps a thick wad of cash on the counter. He has just bought something that costs almost Rs.1 lakh. The cash is counted. A receipt is issued and the man walks out. Why did you not take his identification, I ask. Mild titter of mirth—not needed, ma’am; many people pay cash. Unfair, isn’t it? I’m paying by card; so it is obviously tax paid money. That guy is paying by cash. We know who carries so much cash, right? Nods all around. And then we all move on. That is how it is in India. Cash gets the fast lane.