Saturday, December 6, 2008

Economic Downturn and Latent Demand

When I hear that the economic downturn is effecting the world and that it is effecting India too, I get surprised. India has definitely seen some feelers of the downturn - Our stock markets are going down and some companies are laying off people. But, isn't India still classified as a developing country i.e. a predominant portion of the population is engaged in the primary sector - agriculture, mining, etc? Last I checked, close to 3/4 of Indian population is employed in the primary sector. The job cuts only pertain to the 1/4 of the population employed in secondary sector. Even if the economy in general is slowing down and supply is not finding enough demand, I couldn't help but notice that there are still many examples of latent demand in Indian economy. For one, there are prevalent scarcity of electricity in the country. There is a lot of farm land whose predominant source of irrigation is under ground water. This source needs electricity for water to be brought above the ground through a bore-well. Due to the rampant electricity scarcity, a bore-well is supporting the cultivation of far lesser number of acres than it could have. I am sure farmers would be willing to buy more electricity, if available. This to me is Latent Demand. Instead of playing with interest rates, why can't we feed this demand into the economy? Why can't enough electricity be produced to reduce the cost of captive power units on corporates too? I understand that there is still a lot of untapped hydel power in India. However, I am not sure if this is open to private sector. I know for sure that private sector can operate wind farms in India. If investment avenues in the stock market are drying out, why isn't more investment flowing into this sector? What about other developing economies? Does anyone know? Please comment on this post.