Journey from Saving to Spending: Missing half the equation

History taught us to Save!

Traditionally India has been "save the money" economy. It was the call of that time:

• Generation at that time was evolving to become "well-to-do" middle-class
• Govt under Indira Gandhi followed the socialist model - banks became nationalized and so did many other industries
• Govt needed money - to build the country - and created policies to ensure people save money

And as history has shown us socialism "never" works in practical - after all power tends to corrupt, absolute power corrupts absolutely. And when India adopted Global Free Trade in early 1990s, it was the "paradigm" shift for India

Principles from "capital economy"

Spending is the norm now with government policies ensuring this.. spending rather than saving has tax benefits, loans and credit-card spending are doubling every 6 months, market forces are working at its best with competition at its peak and prices at its bottom. The money is churning into the market

Question to ponder upon

And my friend asked: Now that people have stopped saving in government banks, how does the government make money? Sure government needs money for building the infrastructure never required anytime before or meeting the energy demand or for the next generation of green revolution

The easy answer, I thought, was more sales lead to more taxes


Missing half the Equation

The other half of the answer that I initially missed was investing. Jobs that government have to do - now are being done by private sector companies. This leads to an increased demand for the user money, more return on investment by the private companies, more interest for people to invest and hence more activity in the stock market. Well, this also eases off the government to do anything (except regulating)

And also, then, seems to complete the shift now: Saving --> Spending and Investing

Further Thoughts

Another friend of mine made a comment: in those old days, if the price for gold would go up, the real-estate, the stock market, the market spending all would come down.. and vice-versa
And NOW is the first time that all these different markets are growing at the same time. People are spending and investing