This is how you work an economic stimulus: Give money topeople that will spend it.
Say what you want about tax breaks, bailouts and landconcessions for big business. But as my grandfather (a seed corn salesman) usedto say, nothing happens until somebody sells something. And nothing drivessales better than putting money in the hands of people who don't have any.
Take some recent figures from India as a case in point.
For the first time in 25 years (and possibly a lot longer),rural spending is growing faster than urban consumption, according to a newstudy by Crisil, the Indian arm of Standard & Poors.
Between 2009-10 and 2011-12, additional spending by ruralIndia was Rs. 3,750 billion ($68 billion), significantly higher than Rs. 2,994billion ($54 billion) by urbanites, a national paper said.
"Underpinning this growth in rural consumption is astrong increase in rural incomes due to rising non-farm employmentopportunities and the government’s rural focus through employment generationschemes," the paper cited a Crisil research report as saying.
At this stage, it's unclear what portion of the increasedconsumption stems from migrant labourers sending money back home, and whatportion stems from India's rural employment guarantee scheme. According to thepaper, National Sample Survey Organisation (NSSO) data shows that during2004-05 to 2009-10 rural construction jobs rose by 88 percent, while the numberof people employed in agriculture fell from 249 million to 229 million.Meanwhile, money sent home by migrants from villages to urban areas no doubtalso boosted consumption.
But the suggestion that a welfare scheme for India's poorestis actually fueling growth should prompt some rethinking about a programme thathas recently grown controversial.
India is already running a fiscal deficit of more than 5percent of gross domestic product, and in recent months conservatives haveblasted the government for doling out money to the underclass, claiming thatthese "sops" (which includes luxuries like subsidized rice and wheat)will break the bank. But unlike the corporations who receive tax breaks as anincentive to invest in expanding their businesses and generating unemployment,the new data shows, poor people never fail to plow the cash they receive backinto the economy.
How much of that cash is responsible for making rural Indiaa market that is attractive for companies like Unilever? And, in turn, fordriving the growth of non-farm jobs that Crisil is so excited about?
