Should we be excessively worried about the economic slowdown?

Knowing full well that economic slow down is an inevitable part of debt driven economy, should we blame the government of the day? Should we also create a panic situation by demanding that the patient who is suffering a normal fever be put in an ICU?

If we follow Ray Dalio’s explanation of economic models, slowdown is an inevitable part of a debt driven economy. The way Ray Dalio explains this phenomenon in the following video, even a layman can understand.

Without doubt all modern economies are debt driven. Debt increases demand by creating artificial purchasing power. Increase in demand in turn drives increase in production, which in turn increases income and a cycle of economic development is set in motion. But at some point it reaches a plateau where production cannot keep up to create sufficient income to outdo the debt. There begins the descending curve.

When the slowdown is sharp and is sustained over a long period, it turns into a depression as happened in 1929. All developed economies have gone through this from time to time. It is like what happens to the human body. Certain diseases are man made. Certain diseases, like the seasonal cold and fever, are most likely to afflict even a so called healthy individual in spite of all precautions. One cannot be blamed for all the diseases one gets afflicted with during the life time. Certain diseases like cold and fever are part of normal human existence. I fact doctors say that fevers are part of human mechanism to cleanse itself.

Knowing full well that economic slow down is an inevitable part of debt driven economy, should we blame the government of the day? Should we also create a panic situation by demanding that the patient who is suffering a normal fever be put in an ICU?

If it is a normal cold and fever and in panic we put the patient in ICU, there are chances that the long term damage cause to the patient by the ICU panic treatment will be more damaging.

To me the present situation seems to be a normal slowdown caused by poor performance in certain sectors like auto and real estate. It can be noted that even though demand has decreased in these two sectors the overall demand seems to be robust as reflected in the high rate of inflation.

Auto and real estate are experiencing slackening of demand. Is this decrease of demand due to pure economic factors like lack of purchasing or factors like correction after hyped up growth coupled with change of consumer preferences?

If it is due to the later, it means these sectors have reached optimum level of supply given the current situation. Knowing that the domestic market is saturated, auto sectors should look to create international demand. Only waiting for the government to bail out will not be effective.

Our roads are already choked with vehicles. Vehicular pollution levels in cities have reached alarming levels. For the salary man now a days owning a vehicle is less of a problem than fueling, insuring, parking and driving it.

In any economy it is the salaried and the self employed who are the largest segment of consumers. Indian society has a high preference for salaried jobs than for self employment. Till now IT has been the major driver of job creation. With the advent of AI and machine learning, world wide job vacancies in IT is expected to decrease drastically and India cannot be insulated from the same.

Our Prime Minister has time and again emphasized the importance of self employment. To sustain our growth there needs to be a paradigm shift in our society from being job seeking to being entrepreneurial.

It is said that India was insulated from the global slow down of 2008 due to creation of domestic demand. India’s large underdeveloped population still is a high potential for domestic consumption base. But domestic demand cannot sustain the economy in the long run.

It is time our industries pitied themselves against global competitions. India has no dearth of talents. If only we could find out ways to retain them to develop high quality products and leadership to make us formidable in the the international markets.

Ironically, India is one of the highest consumers of not only Indian products but also non-Indian products. This must be having a positive impact of the GDP of those countries whose products are popular in India. Unless India braces itself to be a tough player in the international market, long term sustainable growth seems to be a distant dream irrespective of the fiscal measures undertaken by the government.

A slow down, which is the result of the natural periodic fluctuation of a debt driven economy should not be a cause of excessive worry to the point of creating panic. course measures need to be taken to come out of the cycle. At the same time it is a time for all major players in the economy for deep introspection so that we come out with stronger measures for the long term sustainability of economic growth.