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Why the Liz-Nair wedding is good for the Indian economy March 11, 2007

Posted by Sharath Rao in economics, india, movies.
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Prakash raises a question about how the Liz-Nair $5 million wedding can ever help the economy ? In other words, how can an “uneconomical” wedding helping the economy. When I wrote the post, I put off writing how exactly I think it helps. It would take too much time. But I am glad someone asked. This is a long article, give yourself a relaxed 10 minutes from your busy schedules šŸ™‚ .

The reason it helps the economy is largely because the money was spent in India. Money spent means someone gave the money to someone else for a service rendered. It just didn’t disappear somewhere.

These are some of the people that are happier off/better off because of the wedding –

a) Jobs that are created on location in Jodhpur

From domestic servants, bus drivers, chauffeurs, food/pantry related, gifts, security guards, event organizers, waiters….the list is endless.

These jobs would not have existed without the marriage taking place there. Arguably most will be around for a month or so and will be gone after the wedding. But a huge number of the unorganised sector relies on these daily jobs and every extra day’s wage is something. Infact, the government is spending 18000 crore of your money to be able to give people work for 100 days/years. Now you know what I mean. Moreover, in many cases, the existing jobs become more productive – meaning the same seller probably sells more items because of this marriage. That counts for something. The caterers who prepared 80 odd dishes – some flown in, others from India – either way, they need so many helpers to prepare the food and waiters etc.

b) Jobs created elsewhere because of the guests’ preparation for the wedding

Consumption is good for the economy. When Preity Zinta went to the wedding from Bombay ( I presume she did, but that is beside the point), she incurred some expenditure ( atleast a few lakhs ) involving clothes and accessories, travel etc. That money was paid to various people – you may still argue that much of it to already ‘rich’ fashion designers, corporate airlines etc. But still someone is better off without hurting anybody else.

c) Tourism and free publicity abroad :

This might yet be the biggest thing ! India attracts fewer international tourists per year than the single Madame Tussad’s museum/Lourve at Paris. Most Europeans and Americans don’t have India on the top of the charts of tourist destinations. There is so much tourism potential in India, but the main problem is getting people to come the first time. What better than the attending someone’s marriage in India. The cultural tourism if one might call that the Indian marriage and the festivities provided is another showcase of its own kind.

Besides all the mentions and photographs in the celebrity crazy British press do so much for an awareness of India. So many governments spend millions of dollars for whole page advertisements in major western dailies inviting people to visit the country. (Indian businesses and government spent $4 million on the “India Everywhere” campaign in WEF, Davos 2005. ) We are getting that for free.

d) Expenditure of guests and bridegroom/groom in India

Rarely does an international guest come the morning of the marriage and leave the same evening. They spend atleast another few days traveling and taking in the country. They spend in rupees, not in dollars/euros. Each person on average spends over $ 15000. Each time they spend a rupee, its been obtained by exchanging them for dollars/euros. Valuable foreign exchange again. They will go around and buy Indian handicrafts/sarees which sell for a premium when it comes to foreigners, which is a great source of revenue. They are going to take it back to their home country and keep them in their drawing room or perhaps wear it. Atleast a handful of people ( especially women who have a thing for interior decoration ) who walk into your drawing room, look at something and ask where you bought it. Now they want it too. One does not need to have an MBA in marketing to know the cumulative effect of these little things. There is even a term for that – word-of-mouth marketing.

e) Imported flowers, wine etc :

Import duty on wine is nearly 400%. That is invaluable foreign exchange for the country. One might argue that how much wine after all and how many thousand dollars will it add to the already huge ( >$ 100 billion ) foreign exchange reserves, but if the country didn’t gain anything from imported wine ( because hardly any of it is imported), then there would be no duty in the first place. And cliched as it might be, little drops of water make the ocean.

f) Feel good factor

One might think that the rich have all that they want and nothing can make them happier. We couldn’t be more off the mark. Being able to attend a celebrity wedding is a matter of happiness and pride for many – infact, for some guests, this might be the happiest point of their social life. There is no price on this. Also the couple likely didn’t spend much of this. Most of it came from the contract that they signed for the pictures of the wedding with the Hello magazine. Readers of the magazine will no doubt be happy.

~~~~~

Its looking crazy, isn’t it ! I must be mad ! If everybody is gaining, somebody has got to must be losing, isn’t it ! I must be missing something. My knowledge of economics is rather elementary, so I really hope I have not missed anything major.

What are, if at all, the undesirable consequences of this wedding and publicity ? Probably, for that one week, the price of incense sticks, onions and other vegetables must have shot up. The merchants and traders still made money from this temporary scarcity. But maybe, the common man had to put up with it. We have to ask them to be sure. Maybe some foreign tourists who otherwise didn’t know how dirty Indian cities can be, now know it ! ( I am sorry folks. ). And then some people had to put up with the hype and news of the wedding on TV and newspapers. There would be some crap on the TV/newspapers anyway. There too the advertisers made the money.

~~~~~~~~

My point is this – let us not look at economic transactions as zero sum games – where only if you lose, I win and vice versa. Or that whenever one person gets rich, another has to get poor. Or that accumulation of wealth necessarily accompanies exploitation. If that were the case, don’t buy anything – because you might end up making the company/shopkeeper rich ! Just keep all the money to yourself and you will sure get richer. With few exceptions, consensual transactions are by definition acceptable to both and that is because each person sees value in carrying out that transaction.

You might think that Shah Rukh Khan has been ripped off by the Omega Inc. when it sells him a watch for Rs. 1 crore. But then for whatever reason, Mr. Khan sees value in it. It is not a wasteful transaction, certainly not an “uneconomical” transcation. And the fact that he is earning as much as does is because he is creating that much revenue and direct/indirect jobs that generate the revenue. Moreover, while nepotism and Bollywood might be inseparable, they are still paid almost purely on the basis of performance (probably even more than we are !) . ( Just ask Abhishek Bachchan if he makes as much as his dad ).

Finally, coming to the ethical argument – you might say that the $ 5 million could be spent to build x schools and y libraries in z villages. Instead what happened – the $5 million+ money has gone to people who were willing to work, they were willing to work because they (mostly) want to spend it in some meaningful way. Its not perfect system, but then what is ?

In this sense, I would argue that this marriage has been more efficient than any anti-poverty “giving away money” program. As they say, immigration and international trade is and remains the most successful anti-poverty program is the world, certainly more than direct foreign aid to governments.

Let us say you close down American borders. Then add up all the money that workers who would otherwise come to the US and send back home and give it to their government as foreign aid. Firstly, it is the American tax payers money and they are not getting anything in return, they won’t be happy. Secondly, it would be a disaster – the money would not reach the right people. Allowing people to work and earn the money – nothing beats this ! That is why its important that people have skills to offer so that they get jobs and here is where human capital – education and work ethic – are so crucial.

~~~~~~

Time to rest my case. I have argued my case without resorting to the word “individual freedom”. I could have just said that on that grounds alone, Liz-Nair marriage in India is “justified”. But that would an ideological stance and therefore unexciting.

And if atleast one person reading this gets the point, good enough.

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Comments»

1. Venu - March 12, 2007

One question – what about the opportunity cost? It’s not always the case that consumption is good for the economy – a case can be made that savings are even more beneficial – they can be poured into long-term capital-intensive projects, such as infrastructure building, which are exactly the kind India needs. Of course, it doesn’t seem to me that if Arun Nayar weren’t having the wedding in Jodhpur, that money would have been invested outside India (dunno if he has any businesses in India), so we’re at least getting him to invest in the form of a lavish wedding.

2. raosharath - March 12, 2007

Thanks Venu for dropping by…

and on consumption, certainly you have a good point there…..

…except in this context you have answered your own question šŸ˜‰


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