Saturday, March 21, 2009

Some Simple Ways to Fight Downturn

Since the collapse of the financial giants worldwide economists have been quite vocal about the dos and donts during the downturn. Several propositions have been already put forth. Most of the governments have taken several corrective measures. Things should turn around soon. But beyond the governments and the economists even we all can take some simple measures to fight against the down turn.

The basic philosophy is very simple. People should have capacity to buy more things - which in turn will trigger more production - which in turn will result in more revenue for the government - which would translate into more facilities for the people - thus finally the standard of living and the economy both growing at a good rate.

In India close to 900 million (~180 million households) people live on $2/day. Even with this level of income most of these households could afford to buy at least one mobile phone. This clearly shows the capacity of the Indians to buy. A little improvement in their income would translate into huge consumerism which can drive India's economy strongly. So the basic philosophy should be to help raising the incomes of these people. These are some of the simple things that the most prosperous 2.2 million households, earning more than Rs 1 million, can do.

  1. Spend your money on products & services that involve more people in their manufacturing - this means that the money you spend directly reaches a wider group of people. For example, the people involved in making an N series  Nokia phone would be insignificant compared to the people involved in making a shirt. If you don't need the phone, better spend the money on shirts, shoes, restaurants or even movies, books, CDs.
  2. Keep as many helping hands at home. Gardening is a good thing. But if you can afford to spend Rs 500 every month better keep a gardener to look after your garden. More number of people you employ, more is the money getting spread. If your gardener finally buys a mobile phone it's good for you finally because you might be designing that phone.
  3. Travel as much as you can. Travel and tourism is one of the most effective ways to improve the economy of nondescript places. India has a diverse culture, history and geography. There are innumerable places that you can see. Go to places that are not in the popular tourist maps. Tourism might create the only possible employment in many places. Stay in smaller hotels and eat at smaller places rather than staying at Taj.
  4. Spend some money on noble causes like sponsoring the education of a child for one year in a village school. There are several NGOs who are involved in this. Your money will reach faster than government spending. Indirectly this has a very positive impact on raising the economic level of any individual.
  5. Very broadly, the present economic crisis can't be solved till the US economy turns around. As pointed by Swaminathan, among the many things that the people of US should do now, one is that they have to save more, consume less, produce more and export more. Conversely countries like India, China, Brazil etc have to save less, consume more, export less and import more. This will turn around the economic wheel across the world. So in India we should try to spend as much as we can, without being extravagant. Sitting on huge cash and saving aggressively thinking of even worse times might not be a good thing at this moment. As the prospects of export for India are not good in the short term, we have to compensate for the loss in export by consuming more. Also we have to import more and consume that too. So overall we have to keep spending as much as we can. This means spending in everything that's useful for us. But remember, never spend on things that you don't need!!

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