Recently, I have been trying to analyse the positive impact of festivals in Chinese and Indian economies. I have heard innumerable economists talk about the strong fundamentals of the Indian economy compared to that of China's. I agree that currently, the economic fundamentals remain strong in India than in China but that's not to say that the Chinese cannot get their fundamentals strong. In fact many are wondering how China would rebalance its current model of economy from being export-oriented to an economy driven by domestic factors. But from the response that they have shown to the global economic crisis, especially with the introduction of a $587 billion stimulus package (about 14% of their GDP) last year, it seems to me that the first step taken by China is on the right track to shift their focus considerably from exports to domestic private consumption even though the next big challenges for China would be to control inflation, gradual cooling of the economy that now looks like over-heated and sustaining the private consumption even after the stimulus is withdrawn.
China:
Okay, now coming back to the festival spending - China just celebrated its Lunar New Year and according to the data released by the Chinese commerce ministry that was quoted by Xinhua news agency (and I got this from "AFP Reuters" news), shops across China are estimated to have had a total sales of about 340 billion yuan ($49.8 billion) which is 17.2% up from 2009. During this spring festival, consumer spending on food, travel, tobacco, liquor, communication equipments, jewelry and home-appliances have all shown an increase from 2009. So, what we can infer from this is that there is a considerable amount of retail spending by the Chinese consumers during the months of January-February of every year. Apart from this, we can consider the Buddhist festivals in a year that would see some increase in consumer spending. And then there is Christmas which is celebrated since there are considerable amount of Christians in China. Apart from this, there are more lunar festivals in a year that might see an increase in spending by consumers that might be above average but not on a large scale.
India:
Now let's consider India. India is a very diverse nation in religion and culture. And almost every state speaks a different language and have their own culture, tradition and festivals. Now consider this example of a festival in a very generic scale - In January, south India celebrates one of the most important cultural festivals and some northern and north-western states celebrate festivals around the same time. During this time - there is an enormous increase in spending on - textile and food (particularly sugar). Most of the Hindu festival days during this January month are also considered auspicious for any kind of new purchases and new ventures. So January also clocks a good amount of consumer spending in capital goods in many parts of the country. Likewise, a wide array of Hindu festivals are spread throughout the year and throughout the states in differing formats. And around 70-80% of the population being Hindus, there is a drive in consumer spending especially on the retail side. Again, the point to note here is that most of these festivals dictate new clothing and other new "things" since they are considered sacred, auspicious and the "right thing" to do during festival time. Now India has more than 150 million Muslims. And India celebrates the Muslim festivals in a grand way leading to more retail spending, especially during that part of the year when the Hindu festivals aren't seen much. And then India has more than 50 million Christians who celebrate Christmas in December right after some of the most holiest festivals of Hindus and Muslims. Then there are Buddhist festivals, Jain festivals, Sikh festivals and other regional festivals spread almost evenly that makes sure that there is buoyant retail spending.
Apart from this, there are festivals that bring demand (and thereby supply) to certain commodities. One such festival is the "Gold Rush" festival (named differently in each Indian language, so I preferred to use English :) ) where people think that it is auspicious to buy gold on that day. Every year during this day, a good percentage of the nation's 1.1 billion people buy gold. And there are other examples like this.
One more thing that we have to note is that India has more rural population than urban population and rural Indians tend to spend more during festival seasons when measured as a percentage of their incomes. In any country, urban population spends on luxury goods as they get richer whereas majority of the rural population spend when mandated by their culture or religion. And since both China and India has a high percentage of rural population, my analysis shows that this rural spending makes a difference. Even during the worst economic times, consumer spending has been a major contributor to India's GDP.
Consumer spending contributes around 35% to China's GDP whereas it contributes more than 60% to India's GDP.
I might have missed to stress the importance of spending in some more Chinese festivals but I don't think Chinese festivals are evenly spread in a year and even if they are, I don't think it mandates spending like that on the Indian side. So now we see one of the reasons for buoyant consumer spending in India when compared with China especially in the retail sector. And this is another reason why there are hundreds of millions of Indians in retail businesses (many of them are family-run small shops). And this private consumption by all sections of Indians, especially the rural Indians forms one of the main reasons for growth in small businesses across the country and causes economists to say that India has stronger economic fundamentals than China. But this is not to say that the festivals are the only reason - United States has fewer festivals than India but has a society that tends to spend more. I did this comparison to see the reason of why the two nations, China and India, which have the same tendency to save more than spend, differ in consumer spending by such a large difference when measured as a percentage of their GDP. Rural spending in India definitely makes a difference but this is not to say that festivals are the only reason for this difference in consumer spending. There are other reasons but this is what festivals have to do to each nation's economies.
No comments:
Post a Comment