Opinion: Are Indians saving, spending or splurging?

There was a lot of dust raised recently with a senior professional commenting on people buying luxury cars vis-à-vis investing in financial instruments. People went into overdrive sharing calculations and various forms of data points. Some went ahead and ‘supported’ the statement, while others went to the extent of ‘trolling’, missing the wood for the trees, as we say!

One has to understand the undercurrents of the comment and not react to the mere words used. Maybe the comparison was not very apt but a serious question was being asked. Is India getting into a post-COVID-19 ‘Ctrl+S’ mode from the ‘revenge buying’ that all analysts were talking about? Is the post-COVID-19 euphoria over? 

This is a critical issue that stares at the entire automobile industry and not just the luxury vehicle segment. Are we getting into recovery mode at all in the first place? After any calamity, natural or man-made, of a scale as the pandemic, society does take time to get back into normalcy, whether you call it the ‘new normal’ or otherwise. Economists say that there are typically three reaction modes – save, spend or splurge.

Save is simple to understand. One starts to secure oneself financially (and also emotionally) before any spending. All the spendings are also primarily to save, as in insurance and a basic mode of personal transport. 

Spend mode is when an individual wishes to get back to the pre-calamity lifestyle at the earliest. This can happen only riding on government actions on security, both social and work-based.

The last mode is to splurge as a psychological counter to the trauma of the calamity. This can happen only in very rich economies that have the financial muscle to bounce back from any adversity, unless it is financial. For those who have become millionaires and billionaires due to the pandemic, the response is typically to get into conspicuous consumption.

The Indian automobile industry has to assess which mode the country will switch on as we have now come out of the pandemic, unless a new wave hits us from China. I read many news items and data analyses about the market being in recovery mode. I beg to differ. Till the time the two-wheeler and commercial vehicle markets do not fully recover, the spurts in the passenger vehicle sales are momentary. I would even go one step lower on the ladder and talk about the recovery of bicycle sales. But then I might go through a round of trolling for that.

The underlying anxiety in the comment is that if the larger part of the economy gets into saving mode, then it just gets that bit tougher for the entire market to get healthy. And the government has a critical role to play in crafting the common sentiment. Remember the “green shoots” that analysts had written about inOctober 2020? Well, they are still taking time to grow!