Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Saturday, December 21, 2013

Want To Save The Indian Economy? Get Married

If you are of my age then you would probably empathize with me. Every time I login to Facebook, I see the wedding pictures of some or the other friend of mine. Though I had anticipated this scenario long back but I could have never anticipated the fury with which it would strike upon me. If you are not going through this phase, then brace yourself. Because sooner than later, those pics are coming. It is bound to happen. With 1.25 billion people and almost 50% of the population below the age of 29, the 'wedding pictures flood' is unavoidable. So sit tight, coz as they say, winter is coming. 

But it is not just about the wedding pictures. After a couple of weeks, people follow it up with the 'honeymoon pics' post. These posts are like 'click baiting'. I click on the pics, super excited, only to see a fully dressed couple with mountains/sea/highway/FatUncle in the background. Not much of a view if you ask me.  

Free Tip : Unless you are planning to post some indoor pics, do not imagine too many people getting interested in your honeymoon pics. 

Also, what is with people going on wildlife safaris and trying scuba diving on honeymoon. Din't they have an overdose of adventure recently. Do they forget that they just got married. And is watching tigers eat, in company of a guide and 20 other people, even considered romantic? 

The fact is, if you are having too much 'fun' on the beach or on the hills, then the trip is less likely to serve its true purpose. Get the priorities straight.    

Anyways, enough of introduction. This post isn't really about couples and wedding pictures. Its more about the economics of it. Recently, I read an article about online matrimony classifieds space. With players like and BharatMatrimony, it is poised to become a Rs. 1500 crore industry. This got me curious and I tried to read more about the Indian wedding industry. And this is my conclusion:    

If you think you should do something about the sorry state of Indian economy or want to help in the fight against poverty, then this is what you should do

Get Married Now. Make it Grand. Do it as often as you can. 

If, because of such behavior, your spouse kills you one fine day, you will die a martyr.

Apart from enjoying the obvious benefits of having multiple life partners, a 'serial' groom or bride does a big favor to the country. Well we all know how important is the rotation of capital for any economy. The faster money changes hands, the better it is. But also, its important to understand that weddings probably have the highest multiplier when compared to other government/private spendings. The amount of activity induced by every rupee spent on a wedding is staggering. Let me tell you why.  

Let's see some simple facts first. 

Indian wedding industry is worth $25.5 billion (Almost INR 158062 Crore). This is more than the GDP of Afghanistan and 20 times of the Indian cloud computing industry.

  • No. of Indian marriages in a year: Approx 1,00,00,000
  • Gold and diamond jewellery market worth: Rs 60,000 crore
  • Apparel market (wedding) worth: Rs 10,000 crore
  • Durable goods market worth: Rs 30,000 crore
  • Hotel and other wedding related market worth: Rs 5,000 crore 
  • Pandal and venue decoration market: Worth Rs 10,000 crore
  • Wedding invitation card market : Worth Rs 10,000 crore 
  • Bridal Mehendi market in India: Worth Rs 5000 crore

And guess what, this this is just the tip of the iceberg. These figures only indicate the amount of money spent by the families of groom and bride. But we all know how much preparation guests do before attending a wedding. 

An invitation to a wedding invokes more trouble than a summons to a police court. - William Feather 

Remember the cute girl who swept you off your feet at your cousins wedding? Well that kind of cuteness does not come for free. There is a lot of preparation that goes into it. Everyone tries to look their best. Money spent on looking good in someone else's wedding is an investment they say. (I tried this at my brother's wedding. No ROI yet)

Add to it the boost to tourism which wedding related travel provides. Apart from pilgrimages, no single category boosts tourism more than weddings. Travel agents make a killing and traveling by bus or train becomes an adventure sport. 

Then there is the gifting market. Largely due to the concept of giving return gift to close relatives. Though its going out of trend fast, it still beats valentines day and other such festivals hands down.

And we've got a toaster and everything. So there is no reason for the wedding. - Karl Pilkington  

But the numbers only tell you half of the story. The fascinating thing about a wedding is the number of people involved in the event and the number of lives it touches. 

If we try to create a list of all people involved, it will take forever. The 'tent house waala', florist, eunuchs, match makers, wedding venues, event manager, DJ, caterer, bus operator, car rental guy, IRCTC, everyone who makes money on railway stations, beauty saloons, clothing stores, accessories stores, fragrances stores, pandits, printing press, mithai waala, Ghodi Waala, band baaja, dhol, dance trainer, stage decorator, electrician, gardner, camera man, hotels. 
The list can go on and on.

And this is exactly what makes weddings so special. This is what gives it a huge multiplier. The fact that the money goes to so many different people. The fact that many industries rely fully on the wedding season. The fact that the industry is recession proof. The fact that the nature of the wedding season is cyclic yet not uncertain. 

So go ahead, celebrate consumerism, raise a toast to the 'big fat Indian wedding' and keep it coming.  

Friday, February 24, 2012

Why You Can Rarely Find A Decent Second Hand Bike?

I have been planning to buy a motor bike ever since I moved out of college. I started shortlisting some of the models 2 months back keeping in mind that the bonuses season was fast approaching. The excitement was all there and everything was in place except, of course, the required moolah. The day finally came, lightning struck, and I was left wondering whether I can afford a bike or not. This led me to start considering  the option of buying a used bike. I spent my last one week looking for a decent bike which would provide some good value for money. But naaah..nothing seemed to click. This reminded me of a great explanation which an economist George Akerlof published in 1970. Let me try to explain that you in this post.

Imperfect Info Playing Spoilsport??

Lets assume that I am willing to buy a bike for anything less than, say, 70 Rs. This means I value the bike no more than 70 Rs. To strike a deal, I need to find some one who owns that bike and considers its value as less than 70. The whole procedure sounds good since I think there would be plenty of guys who would be willing to sell their bike for for say, 45 Rs. For the sake of simplicity let me assume that all bikes are of the same brand and make. Also, let me assume that either a bike is well maintained and worth 70 Rs to the buyer, Or it is ill maintained and worth zero Rs to the buyer. I am taking extreme figures just to make things less complicated and am sure this would not affect the conclusion. Now here is the twist. Whether the bike is worth 70 Rs is some thing that I would know only when I have used it for a considerable amount of time. If I assume that half of all bikes are ill maintained, then I have just 1/2 probability of getting a decent bike if selected at random. If I behave rationally, I would be willing to pay 70/2 i.e. 35 Rs for a bike since the chances of it being worth 70 are 50%. The seller of the bike on the contrary already knows whether the bike is well maintained or not. Since he values his well maintained bike at 45 Rs he would never be willing to sell it for 35. Hence I will not have any decent bikes for offer. The only offers I will get will be from sellers who already know that their bikes are worth nothing. This would again reduce the probability of getting a good bike to much less than 50% and I would be forced to bid for even lesser that 35. This will go on and hence I would never be able to find a decent second hand bike for the amount of money I am willing to pay.
This phenomenon arises because of imperfect information or rather imperfect distribution of information. The seller knows far more than what I know and this will eventually lead to the vanishing of whole market altogether. Imperfect information is again the cause of problems in insurance industry and high premiums that we have to pay for health insurance. In the later case its the buyer of health insurance who has relatively more information than the seller.
The only solution that exists in such cases is to reduce the gap of information between a buyer and seller by educating the one with less information. We do have some companies doing this in India who check used cars/bikes throughly and then explain to the buyer the true value of the used automobile. These companies come in the form of preowned car companies like Mahindra First Choice and will play an important role in keeping the used cars/bikes market alive. But as of now, my search for a good bike is still on.

Tuesday, February 14, 2012

Risk-Return Mechanism of Netas- An economist's View

Any one who has read even a little bit finance or economics will know that the amount of returns you expect is directly proportional to the amount of risk that you take . Greater the risk..greater the returns. Similarly, more the effort..greater the returns( keeping the skill and capability factor constant). So how does this apply to our expectations from a particular profession?? Obviously we accept that a bollywood superstar will be paid ( in terms of financial or other gains ) much more than an IT engineer with modest capabilities. This is because the risk of failure for Shahrukh Khan was much more than the risk faced by an IT engineer. The other factor which determines the compensation benefits for a profession is the demand supply equation. You expect a premium when the supply of a professiopnal service is much less than the demand for it.

Lets say you want to become an engineer. You work hard in your eleventh twelve. Spend a certain amount of your money on tuition and college fees. Study( though not much ;) ) during your engineering days. And then expect a well paying job. During your engineering days your parents can proudly say "mera beta engineering college me hai". Your family, more often than not, supports your ambitions and wants you to dedicate yourself fully to your studies. The risks that you face are negligible. coz if you dont clear IIT-JEE you will atleast get into some other college. Worst case scenario is that you take a drop and get yourself into the worst engineering college in the country. But you will atleast be an engineer with a respected professional degree and a hope to become something in life after doing you MBA.

 Now imagine that you want to be a politician( MP, MLA or PM depending upon how ambitious you are).  
You have to start as a vella volunteer after which you will graduate to chhutbhayya neta or a struggling youth leader. You spend most of your prime days totally broke, walking in rallies which mean nothing, without any respect in the society, ogling at groups of  women with not so manly men, dealing with thugs and gundas, licking the ass of senior leaders, begging for votes for some other leader who you know is an asshole.
The risks that you face in this " dad is ashamed of you " passion of yours is immensely high. You can either end up in jail for few years, or end your political career after you no longer have a chance to enter any other professional education or struggle all your life as chhutbhayya neta helping colony waala uncle in avoiding transfer in his govt job( most people fall in this category).  Also include the tons of money that you spend all this while in hope of reaping a harvest some day. The best case is that you become successful and get a 'ticket' from some leading party and spend the rest of your life fighting media, party leaders, opposition and god knows who.

What do you expect against all this effort and risk( I am stressing on this here bcoz the chances of failure are quite high(like in bollywood) and the downside is immense) ?? A white ambassador and few lakhs which you most probably will end up loosing after your five years tenure?? It makes sense for any rational being to amass as much wealth as possible during the five years of his office so that the future of his family is secured and at the same time he is compensated for loosing the golden years of his life.

Secondly, we never read in newspapers, complains about scarcity of good engineers as often as we do about good leaders. The fact that we always think there are no good leaders in the country suggests that there is a huge demand and supply gap in this profession with demand exceeding the supply by a huge margin. In such a case our Netas do deserve a huge premium over other professions when it comes to financial compensation.

Considering all this, its but natural for a Neta be corrupt and acquire money which he is denied inspite of deserving it. So by expecting  our leaders to be totally honest are we asking for too much??  In the past, kings ruled in the interest of people and dedicated their life for the welfare of the society. But the amount of love , respect, and wealth that they got in return was immense. Are we doing anything for our leaders to command the honesty that we are demanding??

True that the country is lacking good leaders in political structure. But the fact is, we are not doing much to change this. We are not giving enough incentives to well qualified and honest people to take this great risk of entering politics. We have to either lower the entry barrier to this profession and offer more incentives( legal incentives, not the money through scams route). Preferably we should do both so that our leaders don't feel the need of being corrupt and feel the pinch of guilt while engaging in any malpractice.

PS : If you think this is worth more discussion, please help me reach more people by sharing this with your friends.