Rural India, The New IT Place To Sell?
April 18th, 2009
Submitted by: Justin Miller
It’s very easy as an American to assume that with all of our expendable income, we are the best place to sell consumer products. We are where the consumerist culture started. Everyone wants the newest cars, the biggest TVs and every exciting new gadget on the market. But with our current financial crisis, America may no longer be the best place to sell products. I’m not trying to say that Americans wont continue to buy things they don’t need, but they certainly aren’t going to be spending as much as they used to.
Our obsession with buying things that we can’t afford has lead to the current credit crisis as many Americans were not able to pay off the loans on their houses. We learned to buy the things we wanted with other people’s money, with the hopes that we could pay it off later. The following article is an example of how an “old” economy in rural India is functioning well despite the current global economic crisis.
Click here for the article in the Washington Post: Click here
In the article, it talks about a family who just bought a $10,000 brand new car. In cash. Yes, that’s right, they paid for it in cash. They don’t owe payments on it, it’s theirs. According to the article, the reason that the economy in rural India has been isolated from global economy is that most purchases are made in cash. People don’t have to worry about people being able to loan them the money they need because they are buying with the money that they have. Additionally, the Indian government has put a lot of money in investing in the infrastructure of it’s rural areas and the price for wheat has increased by 65% over the past four years. This has lead to an increase in disposable income for the rural farmers, which they are using to purchase new clothes, TVs, and cars.
The interesting thing about this rural economy is that companies are finding it much more profitable to market to the rural markets instead of the big cities. For example, 60% of car sales for General Motors India were from rural and small towns. This is an interesting contrast from the general tendency for companies to focus on the money to be made from big cities.
Awhile ago I read an article that said that Americans have been living lives that were outside of the their means, and that current market recession is the economy shifting back to where it would have been if we bought what we could afford. What do you think? What if Americans, like those in rural India, only bought everything cash? Would we have the current economic problems that we’re having? I’m not trying to say that all lending is bad, as some things, like buying a house, would be almost impossible without it, but how much lending does it take before it’s detrimental to our society?
Entry Filed under: China, India, Pre-Departure
11 Comments Add your own
1. Chris Carr | April 19th, 2009 at 8:18 am
See the below related China Law Blog post and comment thread that your post made me think of, about selling to the high end and low end in an emerging market. Even though it relates to China, the lessons discussed can apply equally as well to India.
http://www.chinalawblog.com/2009/04/ignore_chinas_low_end_market_a.html#comments
Also be sure to read the original post (see below), “Which Comes First The Wealth or the Low End?”, that got this all going …
http://www.chinalawblog.com/2009/04/foreign_companies_going_china.html
2. Alex Thornton | December 19th, 2009 at 2:19 pm
People have the tendency to become detached from their money when they do not use cash. It is difficult for them to realize just how much they are spending when using debit and credit cards. In that regard, switching to a cash only mindset would be beneficial to most Americans individually.
The downside to using less debt is that debt plays an important role in facilitating transactions. More business occurs because future money can now be spent and invested in the present. Consequently, using too little debt will lower economic growth on a national scale.
Perhaps educating people on the wise use of debt would be more effective than eliminating simply asking people to use cash. People will then be able to make their own, informed decisions when it comes to spending and investing.
3. Emily Schaapveld | December 29th, 2009 at 3:56 pm
Invisible money, as I like to call it, has made Americans become so detached from their income that they have unfortunately realized the consequences of their overconsuming habits. Credit has taught Americans that they can get what they want know, with no regard for learning how to save for future purchases. Yes, if nobody bought on credit and every purchase was paid in cash, the economy would slow down, but is that such a bad thing? The business world is in such a mad rush to produce, produce, produce, and then sell, sell, sell, that we have forgotten about the important things in life and our social responsibilty for making this world a better place. I can only hope that the current financial crisis is a much needed lesson learned and that we will all consider consuming less. Someday, maybe we will all have more green in our wallets and less plastic.
4. Erika Bylund | February 11th, 2010 at 8:45 pm
I’m so glad Justin decided to post a blog on this issue. It is by far one of the top issues that I love to get on my soap box about! I love the fact that Indian consumers pay with cash. What a concept, huh?! I can’t really get upset at Americans who have an addiction to credit cards, strip malls, and HELOCS. After all, it is the natural course of things that we should take for granted the economic success and political freedoms that previous generations had to struggle and sacrifice for. This has been the cycle repeated by many civilizations over the centuries, and it always ends the same way (look at the Greeks, the Romans, the Egyptians, etc.) However, I think that we have the potential to make a great comeback if we follow the example of our humble compatriots in India. I think that credit is a good thing in moderation- like all things. We are the next generation up. Where are we going to place the priorities in our lives? Here’s one interesting fact I heard on the radio the other day on my way to school: 80% of people who participated in the radio station’s survey said they’ve spent more time with friends and family since the economic downturn (rather than go on expensive vacations or eating out). As a result, these people reported a significant increase in their happiness. Imagine how much happier we’d be with less stuff and fewer distractions. No wonder you always see Indians smiling- they have no debt!!
5. Danielle Steussy | February 28th, 2010 at 10:28 am
Similarly to what everyone has said above, I have definitely heard that a person does not spend as much if they pay for everything in cash. They essentially see the money leaving their hands, and who likes to see money leaving their hands? I definitely spend far less when I carry cash and am much more conscientious of my purchasing decisions. In all actuality, cash is great when it comes to having a budget.
Americans very much take advantage of their credit cards or even their debit cards. If they know that the money is in the bank (or that they have some credit to back them up), what’s the harm in spending the extra $2.50? Well the $2.50’s add up until money has been unnecessarily drained from accounts.
This only shows that many Americans overspend because they have lost their ability to budget, which in turn has taught them to think short-term, not long-term. It’s sad because this turns into what we have seen in the past couple of years with the recession and these short-term spending habits have resulted in lost jobs and the inability to even pay for the essentials.
However much several Americans like having nice cars and big TVs, perhaps it’s time to be more frugal and start paying with cash.
6. Tim Lynds | March 1st, 2010 at 5:52 pm
I am a strong proponent of earning the money for something before you actually get it. This is not to say that I think everyone should use cash to pay for things. I really like using credit and debit cards for the convenience and the free stuff you can get from accumulating points. Credit cards are not to blame for our society’s debt woes. The problem is with our American instant gratification needs and our acceptance of holding a ridiculous amount of debt.
I actually spend more cash when I have it than I would charge on my credit card. This is because I treat my credit card as having a direct link to my checking account and never charge more than I have in real cash in the bank. I can spend all the cash in my wallet and know exactly how much I have in the bank. If I charged up to my credit limit my account would be drained and I would feel the pressure of debt. To me, having it now is not worth being stressed out about it later.
Credit is important for those who are struggling to survive. A mother who charges groceries to her credit card to feed her family because she has no cash and will not get paid for two more weeks is being totally reasonable. The 20 year old who charges $150 jeans, a sushi dinner, and a movie to his card and can’t pay it off at the end of the month is totally unreasonable. Once uses credit under necessity and the other uses it frivolously. We need to cut out much of the latter.
Lastly, as Alex said, credit facilitates transaction and plays a huge role in our current economy. Limiting credit would slow the economy by forcing people to stop spending. Doing this would have both far reaching negative economic effects and society changing positive effects.
7. John Barry | March 3rd, 2010 at 11:35 pm
If people in America only spent money they had, the world economy would be much smaller. Essentially, what credit cards do for economies, is enable them to experience inflated sales revenues not possible if disposable income was the determining factor in such purchase decisions.
Luxury automobiles would not fill the roads, Germany would probably not be the world’s third largest economy, and home prices would not be so overly inflated if credit was not such a large part of the economy. Since I value flexibility and freedom a lot, I don’t ever tie myself down with debt. Much like the farmer in India who purchased his car in cash, I did the same for mine three years ago when I decided every 23 year old needs a $40,000 Luxury Sedan.
Debt also boosts the economy by ensuring that consumers continue to produce at work regardless of their satisfaction with their profession, as the purchases they made with money they did not yet have need to get paid. All things considered I feel that people’s over-reliance on debt produces mostly positive externalities for those of us not trapped in such predicaments. The only down-side as I see it, is that I cannot afford to purchase homes because the supply and demand curve for houses is highly skewed given that people are willing to pay $1 million plus for homes despite having negative net worths, because of the credit they are able to procure. This inflates home prices and makes them terrible investments unless one believes that credit will continue to be awarded without merit which will in turn continue to raise people’s willingness to pay for homes.
8. Catherine Kristensen | March 8th, 2010 at 6:46 pm
Erika - that is a very interesting comment about people spending more time with friends and family during this economic downturn. The best things in life are free, right?
Following up on the “you shouldn’t spend what you don’t have theme,” I wanted to point out a budgeting method that is said to have developed during the Great Depression of the 1930’s. I don’t know that I have the discipline to go this route, but a friend who is trying to budget her expenses recently told me about the “Envelope System.” The envelope system is a popular method for visualizing and maintaining a budget. The idea is to store your cash for separate categories of expenses in physically separate envelopes. It is kind of scary because if you lose your envelopes, you lose all of your cash for the month! But the premise is that you cash your paycheck, put predetermined amounts in the categorized envelopes, and DON’T cheat.
Dave Ramsey, of Financial Peace University explains it best if you are interested in this topic:
http://www.daveramsey.com/article/dave-ramseys-envelope-system/lifeandmoney_budgeting/
9. Frederick Peemoeller | March 12th, 2010 at 8:06 pm
I don’t think that we have to pay for everything in cash to have avoided this latest recession. In my opinion, lending is not an issue if the people that lend the money ensure that the consumers are capable of paying it back. Many of us would never default on any loans whether it be from a credit card or to purchase a car. It is because we are responsible, and it is the banks responsibility to make sure that they are lending money to people that can pay the money back. In my opinion, there is no limit to the amount that we can have lent to us, but in order to do this, our approval process needs to be fixed.
10. Chase Janvrin | March 13th, 2010 at 8:42 pm
Being someone with a background and passion for real estate, I’m hearing more talk decrying the misnomer of personal real estate being ones most important investment. The idea that borrowing to own a home has proven not to be fool proof, and sometimes even fool hardy. With the power of leverage, comes significant risk. In this day and age where careers and cities are likely to change many times in a persons life, tying up a huge percentage of your income to a mortgage effectively prevents you from diversifying your investments. The fact that Indians are striving for a better life, one earned rupee at a time, and not in the habit of spending an average of 104% of their income is an incredibly important value. The lending, specifically the “creative” lending, in the American system is certainly to blame for the current economic crisis. I wonder how history will recall the significance of this downturn to the state of America, and the lack of such a powerful stall to the continued progress of India.
11. Jeff | March 19th, 2010 at 2:34 pm
It’s great that people can wait and save money to buy a car with cash as described in the blog.
I’m not sure that it’s the smartest way to go though. A credit card or loan is fine if you know how to use them. When you take out as loan, presumably you’re going to pay it back. You just want to leverage your down payment that’s your piece of the pie. For a small agreed upon finance charge, you get to use the car or house. Everybody wins.
When people lie or mislead, either about their income, about the worth of something, or their ability to make payments, that’s where things start going bad.
When prepackaged derivatives, the worth of which can’t be determined, but are given the seal of approval for their stated value are sold with a AAA rating, that’s what started the whole mess we’re in. When people had paperless loans and banks didn’t require proof of income, that’s what caused problems. When banks lent money to people to pay off their first trust deeds with no further proof of income, that’s when we got into trouble.
It is when people lie or misjudge their capabilities when we or anyone else in the world will get into trouble.
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