Here is India's interest rate chart from 1978. As you see, from around 1991 till today we have had a generally declining interest rate. I remember 20 years back, we heard about govt deposit schemes like Indira Vikash Patra that doubled money in 5 years which means they had 15% annual rate.
Low interest rates spur burrowing by businesses and individuals. 20-25 years back the loan industry(home, car, personal etc) wasn't as big as it is today. Considering that each rupee comes to life as debt, more rupees have come to life hand in hand with burrowing. Following is the India M3 money supply chart.
Since 1991, as shown above, M3 money supply has grown exponentially. Assuming the year 1991 value from above as 2000, so far M3 money supply as grown 100000/2000 = 50 times.
Now lets see how far our per capita GDP has grown since 1991.
Assuming 1991 value from above as 1800 and 2014 value as 5300, growth is 5300/1800 = 2.94 times. If you consider salary/wage growth as keeping pace with per capital gdp growth, we see that when money supply has grown 50 times, wealth of individual people has grown only 2.9 times.
We certainly have more millionaires and billionaires now than before but income inequality has increased hugely in India. The reason for that is that the credit growth or loans have gone to people who know how to make more money out of cheap money such as businessmen who are well connected with politicians and can get large loans. Also we have been great rise in asset prices due to large money supply which basically devalues rupee. Such assets are house, land, consumer prices, stocks, gold etc.
It would seem that we are growing by depreciating rupee. However, the rupee depreciation or money supply is far ahead of gdp or wealth growth. Part of the difference goes to asset price increase as well. People who get the initial injection of money or loan are ahead of the curve in acquiring assets.
If you are a poor person with bad credit, no access to loans or uses loans to spend consumer goods rather than acquiring assets then you will fall further and further behind.
Since 1991, as shown above, M3 money supply has grown exponentially. Assuming the year 1991 value from above as 2000, so far M3 money supply as grown 100000/2000 = 50 times.
Now lets see how far our per capita GDP has grown since 1991.
Assuming 1991 value from above as 1800 and 2014 value as 5300, growth is 5300/1800 = 2.94 times. If you consider salary/wage growth as keeping pace with per capital gdp growth, we see that when money supply has grown 50 times, wealth of individual people has grown only 2.9 times.
We certainly have more millionaires and billionaires now than before but income inequality has increased hugely in India. The reason for that is that the credit growth or loans have gone to people who know how to make more money out of cheap money such as businessmen who are well connected with politicians and can get large loans. Also we have been great rise in asset prices due to large money supply which basically devalues rupee. Such assets are house, land, consumer prices, stocks, gold etc.
It would seem that we are growing by depreciating rupee. However, the rupee depreciation or money supply is far ahead of gdp or wealth growth. Part of the difference goes to asset price increase as well. People who get the initial injection of money or loan are ahead of the curve in acquiring assets.
If you are a poor person with bad credit, no access to loans or uses loans to spend consumer goods rather than acquiring assets then you will fall further and further behind.
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