Urban Serfdom

Serfdom the once widely prevalent practice in rural populace, wherein the landless farmers would be enslaved to work in the fields of the landowners for perpetuity. With increasing economic growth the urban populace is also increasing the disposable incomes available with the populace. But is this increase in disposable income creating increasing wealth in the hands of the urban populace. Rather than wealth creation, consumption is taking a higher chunk of the disposable incomes in India. India has been a consumption driven economy over the last decade and the private consumption is a growth story. Easy access to credit is fuelling this growth of consumption. Credit purchases have increased and cover a wide variety of products starting from clothes. This every increasing dependence on consumption goods is only going to increase the dependence of the urban populace on credit and reduce financial independence which is very critical for wealth creation. We are looking at a situation wherein wealth is increasingly being concentrated in the hands of few and transfer of wealth taking place from a majority to the minority.
Let’s take an example of home ownership to understand this transfer of wealth. In a city like Mumbai, the cost of an average sized apartment is near to the seven figure mark. With easy access to credit, majority of the people would invariably take huge loan amount to acquire the apartment. The tenor would be for 10 to 15 year period. This leads to creation of a long term liability which the buyer has to service and this puts him dependent on his income to service the loan. The monthly payment would comprise a major chunk of the monthly earnings. Any negative impact on the buyer’s income earning capacity negatively impacts his ability to service the liability. Thus the person is highly dependent on his job. The situation of the buyer is similar to that of the landless farmer who has been caught in serfdom; the ownership of the apartment makes him more dependent on the vagaries of the economy and less financial independent. The entire consideration is being paid by the buyer to a developer who enjoys a high margin due to the faulty market and regulatory practices which have enabled them to form artificial monopolies.
Financial independence seems to be eluding the urban populace and in absence of a strong social security system in our country, the urban populace is very much dependent on continuing economic growth to be able to reduce the risks of high financial dependence. Innovations and entrepreneurship would flourish only when financial independence is achieved. Also on growth stalling, the risks of social unrest increase quite significantly. The twin risks of high consumption and high liabilities need to be resolved in order to overcome the scenario of urban serfdom.