Wednesday, September 30, 2015


Management science theories are changing like a anything post 2008. Today I find that companies or manufacturing don’t need capital as live blood. They need consumers or rather demand. Creating demand has been the biggest and toughest task for every economy across the globe and the central banks across the globe played all its game to get the same. But the strangest part is that people are more connected sand more knowledgeable and they are more skeptical regarding consumption.  They don’t want to get into the trap of exploitation of resources. RBI game is over and now what next to be taken in consideration is the quest.These are short term strategies to growth but not sustainable economic growth models. Just today China goes for another bold step and I fear that this might be the beginning of a cold war between the developed and emerging economies with China. As I discussed in my previous article that the different economies are fighting over drawing capital inflows. Interest rates have been lowered in some countries in anticipation of US FED rate hike. Hence cost of operation has come down in many economies and also cost of borrowing. Now the only factor which will decide the fate of the economies is the demand which will come from consumers across all industries. The recent step of China throws this competition where it has halved sales tax on small cars to revive growth in the world's biggest auto mobile market. It’s not alone china who is in the game of lowering taxes and spooking demand of manufacturing and consumption. Countries like Japan, Russia, Brazil, Korea, and Australia have been going at steady fast speed to cut down on taxes across various segments to spook growth within their economies. On the other hand Central Bank interest rates have also been reduced by various countries to spook consumption growth. But the surprising fact which will come up later is that today’s investors are well informed about the global economy. They know the pains and death of temptation of borrowed death. Today’s investors are more concerned about protecting wealth rather than going for doubling the same.

India practically has done delay in its Make In India theory. Today every country is trying to offer freebies to attract investments. India has one big advantage which they need to work upon is low cost of living, young population and low cost of production. But the biggest risk India might face is that it is being taken as a consumption market rather than a production hub.  We are standing at a key juncture and every time we ask RBI to lower interest rates. Well don’t you think we are getting into the game of borrowed based consumption? Just think over that in the historic recession when govt pumped billion in the system jobs and demand spooked up but no this time it did not work. The reason behind investors or consumers is more cautious than the historical ones.Today you forced RBI to go for rate cut,but what after this? 

Mere interest rates cut down will not be of much help. We are looking for demand and hence we need prices to come down which would lead to more surplus in hand for buying something more. When the behaviour of the people has changed towards consumption then these strategies will not work. India needs demand where manufacturing gets its live blood. Inflow of capital has become cheap now since there are more sources and less demand. Every country wants a pie of global export and its country to be an exporting country. Well that’s not possible hence focus on domestic markets and strategies your policies accordingly. Government of India should think deeply on the same. Just think that despite of rate cut people are reluctant to borrow and spend,in that case whats your next step.You need demand not capital neither you need short term growth strategies.



Good Insights Indraneel.

I agree with your point of view that we need to focus on core production activities driven by consumption.

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