Wednesday, January 10, 2007


After every trip to India I get questions such as "so are things really different in India?" It's a basic question that I'm sure every person gets when they return. The obvious answer is "Yes" since India's a developing country. And there's usually an undercurrent of woe when talking about how fast India is developing like "Man, I can't be-LIEVE that people are doing XYZ there now!"

[On a quick side note, if you think about visitng ANY place after 5 years, you're bound to see changes varying from subtle to significant. Heck, in the last 5 years, even Milpitas has changed a boatload!]

So usually, when answering this question I focus on the visual changes to the country either in terms of buildings and fashion or things that you find on TV. This time however, the biggest change I noticed was much more subtle.

And that is the the onslaught of credit cards and loans. First off, I'll say that I'm a happy consumer who greatly appreciates credit cards and home loans. But while I'm a heavy user of credit cards, I NEVER rollover a balance on my credit card from month-to-month. Also, even though we have a HUGE mortgage to pay off, before wading up to our knees in loan debt, we carefully thought about our long term plan for housing since carrying this size loan is not a fun thing to do permanently.

That being said, my description about the coming of a credit-based lifestyle in India does indeed have an undercurrent of woe. The main reason for that is the likelihood that many middle-class people are going to get caught in the web of too much credit card debt. Not to say that Indians don't have a good financial sense, but until very recently, India really ran on current accounts. Basically, whether payment was made with cash, check, or some sort of draft, the money being exchanged by lay people has heretofore been real money that already belongs to them.

That obviously isn't the case with credit cards and loans. And that's what scares me. The easy availability of credit cards is a real problem here in the US where such things have been very common for at least 25 years. I've known a few people who just couldn't control themselves with a credit card in hand. Even if they may know that the money is not actually their's, they get this feeling that regardless of how much they spend, they'll figure out a way to pay it off eventually. It's this capitalist can-do attitude that can be great most of the time, but can also get you in trouble if you can't follow through.

And trust me, Indians are masters of can-do. And with easy access to credit, my gut feel is that people will get a few credit cards and buy the nice clothes they really want. They'll get a car loan so they can quickly have their own car. And when they acquire this debt, the feeling will be that even if they can't pay it off now, they'll l be making more money in the future so they'll be able to pay it off in the near future once they're earning more from the higher paying job they're going to get in six months.

There's obviously a big chance these people will get caught in a downward spiral. I haven't heard many anecdotes about people actually getting caught up in this, but I've seen the signs from various companies looking to offer credit to anyone who wants it. It could be the Citibank hawkers outside the Bombay airport offering a credit card to anyone who can show them a boarding pass (as in, hey if you can afford a plane ticket, you can afford a mountain of debt!). It could be the car ad with a big starred section offering up credit to people who need it.

And so that's the biggest change in India I've been mentioning to people. The development of a credit based economy is certainly good and will help the Indian economy grow by leaps and bounds. I just hope that the users of this credit don't forget that it's just credit, not cash in their pocket.

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