Saturday, December 29, 2007

Instant Prosperity through Instant Loans

The neighborhood grocery shop where I buy my supplies has a sticker prominently displayed near his counter which reads “Aaj Nagad, Kaal Udhar” (cash today and credit tomorrow). Clearly it is an attempt at dissuading customers from buying their supplies without paying for them on the spot. It is not that the shop was completely unwilling to provide credit; it is just that they were a bit discerning. Although I have never made use of the credit facility myself, I often see the shop staff taking orders on the phone and noting down details for orders to be fulfilled through home delivery with the bills to be settled on pay day. The shop has a fat and stubby note book where they keep the details of the orders fulfilled thus.

Outside the shops are stickers of another kind. They talk about “Turant Loan” available on call and a mobile number is provided for customers in need of a car loan or a personal loan. Some stickers announce that loans will be dispensed with minimum of fuss and documentation. Which is probably the big draw. I still remember the days when loans were available only from nationalized banks and getting a consumer loan or a housing loan was an even more notorious exercise as they were not considered the priority in the economy of the day. But things have obviously moved on in capitalist India Udhar is still out but loans, especially of the turant variety are very much in though.

Economic growth, especially without sufficient education on how to manage the newly created wealth leads to two kinds of phenomena, both heading down the same path. The first is that it creates a class of the nouveau rich who have the money but not necessarily the wisdom to use it well. As the International Herald Tribune pts it, thirty years ago, luxury in India meant having a phone connection at home, an Indian-made Ambassador car parked out front and a bar of Toblerone chocolate carted home by an uncle visiting from abroad.

All that is as passé as the decaying Ambaasador Car. A recent report by the National Council for Applied Economic Research in New Delhi forecast that the number of "crorepatis," Indian society's rough equivalent of millionaires, rose by two-and-half times in the last three years to an estimated 53,000 households nationwide; at today's exchange rate, an Indian "crorepati" household earns about $232,000 a year. A lot of that group of people today wants to flaunt their wealth and what they have and along the way carve out the unmistakable picture that “size does matter”.

What happens when the prince and the pauper are exposed to the same goods but their purses don’t match? The paupers who don’t have that kind of money but want the products that wealth can buy do one of two things. Either they head for the man who has put up stickers on the lamp post promising them turant loan and put in an application irrespective of their capacity to repay or they are turning to urban crime, the rates of which are rising.

Sadly, the future is going to be no better. According to a survey conducted by the Cartoon Network, children are now key both as direct and indirect consumers in the Indian market as they exercise a major influencing power, or alternatively termed as “pester power”, on parents in buying big items like cars. They spend nearly Rs.291 crores as pocket money and this is only in the fourteen cities where the survey was conducted. Clearly the time has come for policy makers and planners to wave a magic wand and provide India’s huge population with tatkal prosperity by removing the social inequities that exist, so that there will be less reason for availing the turant loans.

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