Investor Needs to Mature

(Published in Banking Services Chronicle April 2008)

We are going gaga over our GDP growth. At a commendable rate of 8-9 per cent we are next only to China. We are supposed to be the leaders of the Asian century. The growth story on the whole seems impressive. Those who are bullish on India are even tempted to see the country as an equal partner of the US and the EU.

But let us not jump to hasty conclusions. Many a batsman has disappeared into thin air even after scoring a century on his debut. Reason: their technique or temperament was riddled with holes. Indian economy too is riddled with holes of disparity. The Great Indian Wealth is concentrated in the hands of a few. The proportion of earners is far from adequate. According to a survey conducted by insurance company Max New York Life and New Delhi-based research body National Council for Applied Economic Research (NCAER), 68 per cent families still depend on single member’s earnings.

Moreover, we must not forget: it is difficult to earn, more difficult to save, most difficult to invest. The good news is that Indians have an inherent trait of saving. Despite the recent boom in consumerism, about 81 per cent of Indian households save. In the times of recession it is something the Americans might envy. But the bad news is that our people don’t know how to invest. Investment has traditionally been the prerogative only of the Marwaris and the Gujaratis. Sadly enough, things haven’t changed much even today.

We tend to either play too safe or throw caution to the wind. On the one hand, more than one-third of the people simply keep their surplus income at home — in cash. Half of the people park their surplus in commercial banks. On the other hand, when the stock markets were peaking, there was a blind rush for shares best symbolised by the huge oversubscription to the Reliance IPO.

The investor here needs to mature. They need to tread the middle path. Says Planning Commission Deputy Chairman Montek Singh Ahluwalia: “People don’t plan rationally for risks. There is a need for contractual, long-term saving.”

Once this maturity comes in, not only will our growth go into double digits but also it will be a more rounded one. We will not only grow but also develop.