The economist Thomas Robert Malthus argued that “conspicuous consumption” was good because of the trickle-down effect. Once the affluent began to spend their money on engaging domestic servants, buying expensive clothes and jewels, building mansions, going on expeditions and so on, a huge quantum of purchasing power would be generated in the economy.
But the former West Bengal finance minister and economist Ashok Mitra argues in The Telegraph, Calcutta, that the “conspicuous consumption” sparked by the IT boom in India is not percolating down to the domestic system but have been largely dissipated on types of expenditure that create a spurt in imports.
“Way back in 1991-92, the first years of the so-called economic reforms, exports of IT-related services were only $ 2.1 billion; these exports soared to $ 11.6 billion in 2001-02 and further on to $ 58.4 billion in 2006-07.
“Now look at the import of petroleum and petroleum products. These imports were $ 8.6 billion in 1991-92, $ 20.3 billion in 2001-02 and $ 83.3 billion in 2006-07.
“Over the 15-year period (1991-92 to 2006-2007), while export earnings from the IT-related services have gone up by more than $ 55 billion, the import of petroleum products has shot up by nearly $ 75 billion.
“Will it be unfair to suggest that the steep increase in the import of petroleum and petroleum products has a direct connection with the pattern of expenditure that arise out of the sharply-rising export earnings from IT services? The demand for petroleum and petroleum products has skyrocketed, it can well be maintained, because a substantial part of the astronomical incomes generated in the IT-related units has been deployed to buy automobiles, which are great gas-guzzlers, as well as other luxury consumer goods for the output and marketing of which petroleum products are again much in demand.”
Read the full article: Trickling out
I would say all the IT companies especially imperialist American MNCs should be closed down in India and then all the software engineers should go on a strike demanding employment.
10% of all salaries (not only for IT people) should be in the form of vouchers which should be redeemable for tourism, movies, events, sports events, restaurants. These are the sectors which create jobs.
This is the best way to force people to spend and it will suck out money out of Real Estate, cars or other Luxury items.
To sweeten the pill for the salaried people, this 10% can be made tax-free. There is a precedent for this – Sodexho or other meal vouchers (which can be redeemed against food purchases).
Unfortunately, the economics is not as simple as what is mentioned here. Petroleum products is backbone of Indian economy (like all industrialized). Govt. makes huge money in this business and in turn Govt can spend the same as well.
Currently, Govt. is not letting the pure-economy play in this sector and regulating the prices (Vote bank politics)…In turn, subsidizing petrol (+other products) heavily….These Calcutta RED flag guys are one reason for not letting things take market rule. Based on current crude prices, oil companies (govt) are making huge losses….TReliance is not getting this and thus they are closing 900 petrol stns owned by them
So, import/export alone really does not matter…what matters is how to run successful economy internally once goods comes-in and then to make sure the money earned is fed-back effectively.
Please take Sudha Murthy as a reference who thinks washing her kitchen utensils herself makes her look down to earth, but what about women who are not married to Narayana Murthy and are to live only by earning from jobs like washing clothes and utensils? Is Sudha Murthy saving even that little money that can be paid to poor maids who can make a living out of it?
Should not women like Sudha Murthy be forcibly made to spend money that would ensure percolation effect so that the women may reach like house maids who otherwise in the end may have only the historical option left of selling their bodies to survive?
The neo upper class vermin need to be made to fall in line forcibly or will have to be made to pay a price for such culpable mischief.
Ashok Mitra doesn’t take into account the fact that there has also been a surge in the prices of petroleum, unprecedented in history, in the last 4-5 years because of 9/11, the Iraq War, Chinese demand, etc. Besides, India’s exports also include textiles, automobile components, diamonds, among other things, and to ignore all of this and try to draw a one to one correlation with IT services is sheer folly.
What a stupid argument! Petroleum is the main source of enery which is driving all economic activities in the country. If we were importing only $8.6 billion worth of petroleum in ’91, that’s because we couldn’t afford to import any more – that’s all our forex reserve would allow us to. Hence the amount of economic activities were also limited by the amount of energy available. Now we have larger forex reserve (thanks to exports), we can afford to import more petroleum and hence higher economic growth. Yes, growth in IT exports and Petroleum imports are related – but not in the sense (“IT guys guzzling petrol”) the author meant. Instead, IT exports are enabling us to import more petrol and drive more economic activities.
Look at it from another angle. There are a grand total of 10 million cars in India. Even if all of them run 1000 km per month on average (pretty high), it only works out to total petrol consumption of $12 billion per year – a fraction of the $88 billion petroleum imported us. So, no Mr. Mitra, it is not gas-guzzling cars that are consuming all that petrol. Most of the petroleum we import goes into trucks, trains, tractors and two-wheelers – all of which result in activities that help money trickle down. Just look at an IT guy’s expenditure. Does petrol bill figure highly in his monthly expenses? Not even close. They spend more on restaurants, domestic helps, cooks, drivers, vacations, clothes, etc. all of which again, does contribute to trickling down of benefits.
Good that this Ashok Mitra was the finance minister of Waste Bengal and not of India. His hairbrained thinking amazes me. The crude oil prices have sky rocketed in the last 10-12 years. This bozo does not realize that, as he is living in a virtual world of his own. Also if these commies had allowed more dependable public transport in India to take root, nobody would have bothered to buy cars. No wonder Calcutta still uses the out dated trams and age old buses that used to ply the roads in 60’s. Moreover, IT exports are not the only exports happening from India. Ashok Mitra should start giving some advise to his handlers in China who made him write such stupid article.
I agree with Mohan. The Ashok Mitra’s argument is down right stupid, if not moronic. He links 2 variables and says IT guys are spending all their money on petrol and petroleum imports. According to Ashok Mitra IT guys never spend anything except on imported petroleum products. This is somewhat funny to visualize. see the description below.
” The Average IT guy wakes with a cup of Petrol and after that he eats tar cakes and crude balls for breakfast. He/she dresses up in use and throw clothes spun from petroleum imports. He travels on a loft made of 10 gas guzzling cars to his office situated in next block taking a round-about 10 mile route. At office first they heat up the whole space burning aviation fuel (Kerosene) and then cool it up using high power air conditioners run on Diesel gensets. Of course they all have 10 cups of diesel each at Office while breaking their head over buggy codes. Then ….”
Surprising why anybody bothers to read this dolt. But, aha, he is like a stuck clock, and gets it right at least twice a day! But this column, that is not.
Given our deep and abject levels of poverty, a 9% growth rate is still not enough, about 15% would be desirable and 20% would work wonders. Our problem today is the inability to grow the manufacturing sector – because of pxxx-poor infrastructure and a corrupt and kleptocratic political class. This is worsened by the misplaced emphasis on subsistence agriculture, instead of large scale institutional farming; and the lack of any vision to build dense and efficiently run cities. All very hard problems, made harder still by stupid policy.
Mitra is talking gibberish about Keynes. Demand sometimes fails, which is when public investment must step in to fill the gap and spur the economy. There’s a great deal of empirical evidence that this works. If only Mitra were to remove his blinkers and get down to some serious reading.
This article makes very little sense. People like buying cars and bikes whether they work for an IT company or a construction company! Why blame IT for this desire! These commys and socialists want to trouble everybody for all their problems.
Enemy of kings,
Dont worry about Sudha Murthy not spending money. Their children are living it up in the US. Education, cars, living etc. Maybe not spending on Indian maids – but money gets spent somehow. And since it is their money – you dont have to worry about how they spend it.
@ Anonymous
Money earned from free land and tax rebates. Yes, such money needs to be spent only in the US.
Let Ashok Mitra implement his ideas in West Bengal. We will have something real to compare. Well, I guess he did as FM under Jyoti Basu and one thing I know is that his words don’t match the results he achieved.
Thanks to Goldstar for a thought provoking idea and to Alok for punching some holes in commie arguments.
Enemy of the king,
Worry not about others on how they spend and on what they spend. The trickle down economics is the most discredited hypothesis in economics. When you save (hopefully as a deposit in a bank) that enables someone else to borrow money from that bank.
If you are concerned about problem with free land and tax rebates, go and ask the MLA/MP you voted for.
I wish the communists would talk of some way to create wealth. Why blame all problems on the one Indian industry that is the envy of the world?
Lets do some math (which neither the communists nor their forefathers ever learnt)
There are about 1.5 million employed by the IT industry. Lest say 33% own a car (most are freshers on their bikes). So thats 5 lakh cars. Assume an average annual expenditure of 1000 dollars on fuel (I overshot, its more like $500). That makes it half a billion. Put another half billion for those who go in bikes and buses and you have a billion in expenditure at the most extremes
Marxists, please learn some arithmetic first
Can we hand over Bengal to the Chinese please ? These dolats and their unions will be flogged and we can take them back after they learn some useful habits
These red flag commies can never ever think straight on any issues !!
A – shok Mitra is talking only about import export numbers… he has conveniently forgotton about few other numbers like the price rice in petrol globally :)