The country's growth is largely due to the people's efforts, particularly the frugal habits of housewives, who are putting corporates and the government to shame though both are cornering the credit for the economy's performance. R. VAIDYANATHAN says housewives will help realise the country's dream of becoming a superpower.
This is the time of celebration and felicitations. The economy has grown at 9.3 per cent in the last quarter of 2005-06 and at 8.9 per cent in the first quarter of this year, and there is a talk of reaching 8.5 per cent trend rate of growth.
All and sundry are claiming the mantle of reformers and trade associations, business newspapers, women's forums and assorted groups are praising the bureaucrats and ministers for the miracle.
In the 1960s the country's savings rate used to be around 8 per cent and the (in)famous theory of vicious cycle of poverty that is, low savings rate meaning low investment and hence low income which give raise to low savings rate and so on became popular, riding the India example.
The theory politely pointed out that countries like India do not have a chance in the modern world as they have missed the bus.
Role of government
The Nehruvian socialism (called the Socialistic Pattern of Society) of the 1950s and the 1960s accepted this premise to stress the role of government in the entire developmental process.
The government was supposed to be the catalytic agent to enhance savings and investment and that this would take care of equity issues as government ownership
per semeans all people are benefited. Both these assumptions were proved wrong in the 1960s and the disastrous 1970s. From the 1980s the savings rate has shown significant increase and was 20-24 per cent through that decade touching 30 per cent now.
The single largest contributors to savings are the household sector. When we talk of households it must be remembered that they contain pure consuming or wage-earning households as well as mixed households having production activities.
This phenomenal increase in savings was achieved through the efforts of the household sector which constitute more than 80 per cent of the national savings, as seen from Table 1.In comparison, for instance, the personal savings in the US is a miniscule or negative per cent of GDP. This savings rate of the households is without considering investment in gold by households, as that is considered consumption by government economists.
Actually purchase of gold is an insurance and pension product by lower classes and if we include that, our savings rate will be higher by another two percentage.
For family and country
In spite of exhortations by industry captains and assorted economists to people to `Shop till you Drop' wherein the progress of India is measured by `footfalls' in malls on a daily basis the middle-class housewife is saving for the family and for the country.
The savings by households is the engine of India's growth as they constitute the largest portion of investments contrary to popular views that foreign flows are giving a thrust to our economy.
Actually foreign flows constitute less than 10 per cent of total savings, as seen from Table 2
Though foreign flows are not part of the domestic savings and supplement capital formation, they are expressed as a percentage of domestic savings to highlight their small role in the economy.
Yet, much is made of these flows and it is made to appear that the country's growth is due to the effort of the Westerner. Foreign flows, not domestic savings, grab headlines.
In fact, the country's growth is fully due to the people's efforts and particularly of the households and, especially, the frugal attitude of housewives who wage a battle day in and day out against inflation.
The savings are mainly for education, old-age security and health-related concerns. The country does not have a generalised social security which covers all Indians; indeed, it may not be possible given the population and the financially broken governments.
But the role of the housewife in propelling India into the emerging markets club and possibly to the position of the fourth largest economy must be recognised. Unless this fact is recognised sustaining the growth rate may not be possible.
Incidentally, this author in his research on socialism in India discovered that the Avadi Congress held on January 17, 1955 did not have an official resolution of making India a Socialistic Pattern of Society.
The Hindudated January 18, 1955, says: "It was not part of the officially sponsored resolution approving the government policy. It came in almost through the side door as a non-official motion."
The Government should focus on the security of its citizens instead of being in business and a spoiler of the growth process. The housewife as a saver is putting corporates and the government to shame though both are cornering the credit for the enhanced growth in our economy.
Don't undermine households
The more important thing is that the government should not do anything to affect the growth rate by undermining household savings. Equally important the government should not absorb a large portion of household savings. More on this later.
The best thing government can do is to recognise that it is part of the problem and not the solution.
Housewives will help realise the country's dream of becoming a superpower.
(The author is Professor of Finance and Control, Indian Institute of Management-Bangalore, and can be contacted at email@example.com. The views are personal and do not reflect that of his organisation.)