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Attitudes towards savings will change

business Updated: Feb 16, 2009 12:15 IST
Dhirendra Kumar

Crises change people's mindset and their behaviour. The deeper and longer the crisis, the deeper and more permanent are the changes.

Businessmen are now asking, "When will things get back to normal?" If by normal they mean the way things were back in early 2008, then the answer is, “Not for a long time.”

That sounds pessimistic but actually isn't. On New Years' Eve 2007, youngsters thronged restaurants and shopping centres. Jobs were easy, credit cards rampant, and mall builders optimistic. In numbers, those days may come back. The jobs, the sales, the salaries, even the credit will eventually climb back to that 'normal'. But what won't come back is that euphoric feeling.

In America, people say that the Great Depression changed the way a whole generation thought about money, about financial risk and about savings. In India, things will never get as bad as that.

Indians who joined the workforce before 1990 or so have a different way of thinking about money. They grew up in an atmosphere in which intelligent college students used to get easily depressed just thinking about the future. And they don't take opportunities for granted.

I think a good majority of the later generation has negative savings and a negative net worth. They have casually predicated years—even decades—of their future on being able to maintain a growing income flow. And that is exactly where the economic crisis has hit like a psychological tsunami.

I don’t know whether the crisis will get much worse. But if all it does, if it readjusts a whole generation’s attitude to savings, it would almost be worth it. The future is not a straight line upwards. Instead it is a cycle that will have its ups and downs.

This realisation alone could save India's vaunted household savings rate from being flushed down the drain of the new consumerism.