Who really is benefitting from India’s IT boom?

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