Are we face-to-face with the rumbles of deflation?

21 Dec 2021 12:00 AM IST
The Indian economy has been volatile with the varied sentiments of the customers yet to get back to normal.
The Indian economy has been volatile with the varied sentiments of the customers yet to get back to normal. The reduced consumption and salaries have declined the purchasing intent of the customers.

Where we have witnessed economic starvation in entire 2020 that seems to continue in 2021, we also see the start ups and gig economy booming. The entire year has been speculative with GDP, yet the question remains once we see the locks in the shopping malls and the significant reduction of people going out to malls. The layoffs of the people at an advanced age with minimal chances to get them back to jobs is alarming.

As of April 15, 2020 Amazon founder and CEO Jeff Bezos' wealth soared an additional $25 billion during the pandemic—after being down for a bit during the early days of the outbreak and the stock market's initial free fall. Eric Yuan, the founder and CEO of Zoom, online video conferencing technology company, also had a rapid rise in his wealth throughout the outbreak and is reported to be worth about $2.58 billion.

So, even when billionaires are getting richer, the market continues to see recession. The declining jobs and salaries and economic depression continues post-2020 also. Paradoxically, even though the market have a flood of jobs, they are at the junior most level to drive the business and increase the revenue at the cost of layoffs at senior mid and even senior-level employees. This is also a threat to the talent of country. This has led to shift even the middle class to the poor segment of the society. So, even if the worker has got a currency and money, but is the requisite quantum of money really getting circulated?

The majority opinion is that there will be deflation and will take good time to build up a healthy economy. Well with new money pumped up by central banks, the companies will build up their business, yet the demand issues will create a lag in supply.

With reduction in wages and salaries even when the market will be full of supplies, it has taken a heavy toll on our people. The significant increase in the number of suicides of people who were on debt from market does not only reflect the monetary decline, yet also the decline in the Happiness Index of the country. Hence the spin is expected to be deflationary. Deflation is always fearful as it leads to weakening of the economy. It is very important to have real sentiments of the economy

Historically, there have been most of the times inflation and not deflation. Few are recalled-

  • The Great Depression, recession in 1929 when the output didn't return to the previous long term trend till 1942.
  • Deflation in Japan in mid- 1990s

Is wealth being created?

According to World Bank, this year the global economy is expected to shrink by 5.2 per cent. This is one of the deepest recessions, with largest fraction of economies witnessing decline in per capita output since 1870.

As per World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu " Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust recovery as possible to prevent more people from falling into poverty and unemployment."

The central bankers had been running fast to stay in the same place. The economists are still wondering if inflation has lost its meaning. The flood of cash can be done by creating new money to buy securities from nations bank and pump liquidity so that the economy can further drive down long term interest rates.

Wealth creation through serious entrepreneurs at the grass roots is a key lever to improve the wealth creation in India.

There are also arguments on removing policies that undermine markets through government intervention when are not necessary. Basically, privatisation to foster efficiency.

According to bank's Global Wealth Migration Review of 2020, 7000 Indian HNI migrated in 2019. The numbers were high as 7,000 in 2017, 6,000 in 2016 and 4,000 in 2015. The data speaks about 29,000 Indian dollar Billionaires and millionaire who have shifted their base with either complete wealth or partial wealth.

As per Organisation for Economic Cooperation and Development (OECD)- there has been a significant reduction in the price of good and services. There are various concerns that global recession can lead to deflation.

The sum of consumer surplus and producer surplus is a social surplus or economic surplus. The same is referred as wealth created by market. It is going to be interesting to witness the creation of wealth, yet the new stimulus will not be able to stop deflation which will support recovery and return to normalcy in many areas of our lives.

(The author, an alumna of IIM-L is a leadership trainer, global speaker and a writer. She was an Army Officer for more than a decade and part of a skydiving team which jumped from a height of 14,000 ft)