Let me tell you a story. It is an exciting story. It is a tragic story. It has greed, theft, slimy deals, and billions of dollars. Why am I telling you this story?
Because it lies beneath the dry data that economists are telling us today—that Indian consumption, one of the most powerful engines of Indian growth, has collapsed because it could not keep up with the lack of income growth. Quite simply, people cannot dip into their savings to keep consuming.
Now there are many ‘structural reasons’ why this consumption and income growth has stalled. Depending on who you ask, there are many reasons for this slowdown. A global inward turn (‘America first’ etc.) means that barriers to trade have risen sharply, exports have fallen, and the trade war between China and the U.S. was going to provide some opportunities to boost India’s trade with its biggest trading partner America, until Donald Trump decided to go to a mini-trade war with India too.
This, coupled with a slowdown in every sector, including services, according to the numbers just released in the Economic Survey, means that the Indian economy has fallen off its ‘world’s fastest growing’ status.
So, what is going on?
Think about this. Once upon a time, say the year 2010, in the Indian capital, there was a successful, well-earning, under-30 professional. She noticed that no matter what she earned, it was difficult for her to buy a home in her beloved Delhi because through the boom years between 2003 and 2009, when economic growth soared to 9% and exports grew at 17% a year and consumption was at 7%, not a single politician bothered to fix the underlying, wretched crookedness of the Indian system. This meant that to conduct the radical act of buying a home in Delhi, she would have to pay 50% of the price in black—or in cash, illegally.
Most professionals could never pay such amounts in cash, so she was driven to buy a home in the neighbouring satellite cities of Gurugram or Noida. Lo and behold, Gurugram soon became notorious for crime and poor public services. A report by environmental group Greenpeace named Delhi the most polluted national capital in the world, and Gurugram the most polluted city in the world.
Even accommodating for hype, there is no doubt that Gurugram is a terrible place to live in—a flotilla of condominiums in a sea of booze joints.
So, our professional decided to purchase a home in Noida where real estate developers promised ‘Another Place, Another World’. It has been almost 10 long years—there is no house. She is now stuck with thousands of families whose life savings have disappeared in one of the biggest housing scams in history. The builders are said to have paid off every political party—which is not surprising at all considering real estate remains perhaps the single most dastardly corrupt sector in India.
Now our professional is part of millions of others in every Indian city whose life savings have been stolen from them—and absolutely no one cares. Unsurprisingly this has had a crippling impact on home sales leading to one newspaper declaring in 2018 that it was the year ‘when real estate died’.
The truth that no one tells you about India is that for 70 years poisonous corruption destroyed any sense of harmonious living or livelihood in the country. So much so that today, India’s major cities are simply not worth living in—no matter how much money you have, you still must breathe air in Delhi which will kill you and stunt the growth of your newborn children. Every year, without fail, no matter which government is in power, India’s financial capital Mumbai sinks under seasonal rains. Is there any city in the world where in 2019, people die falling into open manholes again and again? In Mumbai, they do. India’s much-flaunted information technology hub Bengaluru is a Godot-ic wait in cars for destinations that never arrive and traffic jams that never end.
India’s consumption and indeed its economy was, and is, fuelled by a middle class of people earning between ₹4 lakh (around $6,000) and ₹20 lakh a year or more. These were people whose hopes of a better life in India had fuelled the economy, but this hope is slowly fading.
Psychologically and philosophically, for instance, home ownership is one of the core expressions of good citizenship but when this primal dream has failed in India, is it any wonder that ordinary people, fearful of their future, do not wish to spend anymore? No political party wants to reign in real estate developers for cheating millions of home owners because this is one sector which continues to be the primary conduit for money laundering in Indian politics.
The other primary source of corruption are India’s banks, especially state-owned banks, which had been used in the past, along with other financial institutions owned and operated by the state, as a never-dry tap for all kinds of loans to all kinds of crooks who would never have to pay back. The slow but steady clean-up of this putrefied core is causing the greatest shake-up of Indian business since independence—the way Indian business is used to doing business, on information arbitrage based on corruption, is ending.
Morgan Stanley has calculated that 23,000 dollar millionaires have left India since 2014—7,000 in 2017 for instance—some have left because India is becoming unliveable, some because their corrupt way of doing business is no longer possible, some because India still makes doing business too tough.
In recent weeks, many start-up founders have complained to me in private conversations that the idea of taxing angel finance is insane and have wondered why the Indian government was persisting with this tax. Several begged me for contacts in the Ministry of Corporate Affairs to help shut defunct companies – a process that can take years due to trivial filing issues. Many of them are working to find ways to register their businesses in Singapore instead of staying in India. This is bad news. India needs to retain such wealth creators and not lose them.
What does all of this add up to? It adds up to a middle class and wealth-generating class which is unsure about their country and their ability to have a decent standard of life with even the basics in it.
This fear and mistrust of the Indian consumer is one of the main reasons that the Indian economy is sinking. Unless this confidence is restored, the long-term impact could be generational.