Home / Opinion / What slowing growth has to do with why we’re feeling so low

Have you been feeling low lately? Generally pessimistic and grumpy? I met a colleague in the lift bay and swapped stories. A fund manager drops by to meet me and we discuss how everybody feels much older than before. That the last 10 years feel like 20. Many conversations over the past few months lead me to think that the urban mass affluent Indian is not feeling too happy. It’s a big come down since the go-go days of 9% growth. No wonder that the Misery Index for India is the highest since 1991. Nomura Research has tweaked the classic Arthur Okun method of adding the unemployment and inflation rate (higher levels of both, the argument goes, would cause higher economic and social distress) to take the difference of the Index of Industrial Production growth and the Consumer Price Index to construct the Indian Misery Index. The swap was made necessary by poor employment data in India. The greater this difference, the higher is the misery index. With inflation persistently high and industrial production and jobs falling, no wonder the lines of worry are settling in. Add to this the sheer persistent deluge of bad news across all fronts—economic, political, social, moral—and the picture looks even worse.

But does falling growth really cause non-economic distress? Is there a link between a cold rupees crore number like the gross domestic product (GDP) and how we feel today? I found a great book that says, yes, it does. In his book, The Moral Consequences of Economic Growth, written in 2005, Harvard professor Benjamin M. Friedman links economic growth to non-economic outcomes such as increased opportunity, more tolerance, growing generosity and greater democracy. A slowdown, he says, gets us exactly the opposite. Says Friedman in an 2009 interview to Vox EU (you can hear it here: http://www.voxeu.org/vox-talks/moral-consequences-economic-growth): “sustained economic growth broadly distributed across the population leads to forward progress also in these moral dimensions, to call it that using the 18th century sense of the word. And conversely, when people have a sense of stagnation—which frankly I’m afraid they’re going to if they don’t already now—then not only does the record show that no further forward progress is made, but often there’s a period of rigidification, retrenchment, retreat, often with very unfortunate circumstances."

The societal costs of falling growth like rising crime levels are something we have no control over, but what we can deal with individually is our reaction to this slowdown. I know it is difficult, but this may actually be a good time to do what smart companies do in a downturn. They cut the flab, put in systems and grids that they can’t do in boomtime and become hugely competitive.

Use this tight money stage to put your finances in order. That means getting your cash flows streamlined so that you know clearly what goes into the savings and investment account each month and what is the monthly ball park spending money you have. Use this time, when there are no new exciting projects to sink your teeth into, to stitch an insurance lifeboat around yourself. This means creating an emergency fund to last your for six months without an income stream, buying medical cover that you own and not your company, buying a life cover for the principal bread winner for an amount that is seven to 10 times the annual income and getting your assets covered as well. Poorly performing assets can be cleaned out (even if it means taking a loss) and a lean mean portfolio can take shape. Remember, the focus should be to build a grid so that it will work on its own with minimum attention from you on a month-on-month basis. Once good times come, work and leisure will soak up all the time once more. But this time you have a hands-free money grid in place.

End Note: I met a stock market veteran last week for an informal chat. The market and the rupee had euphorically risen for two days, reacting to the taking of office by the new Reserve Bank of India governor Raghuram Rajan and his first speech. I spoke disparagingly about the irrationality of markets and their search of pegs on which to either rise or fall without much cause. A slow smile and then this gem: “This was the market’s salute to the man and his first speech. This is the market’s way of saying it likes something." At least somebody is happy.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached at expenseaccount@livemint.com

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