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The Wedding Maze: Homebound Glamour Or Minimalist Ties – IMPRI Impact And Policy Research Institute

The Wedding Maze: Homebound Glamour or Minimalist Ties

TK Arun

Should those who blow up small fortunes on lavish weddings be asked to spend the money locally or to spend less on weddings and more on capital formation, especially at a time of tepid investment? Many might find such juxtaposition of consumption and investment without taking into account the causal linkages between the two more than a trifle awkward.

Recently, Prime Minister Modi urged Indians to hold their lavish destination weddings in India to boost domestic tourism and the domestic economy, he said. The response has been varied.

Travel agencies are miffed, wondering aloud how flights to foreign destinations would be viable if they only carried inbound tourists, while Indians travelled only on domestic routes. Wedding planners and event managers — those of them who have developed a practice in fancy foreign locales — are resentful, too.

Staunch believers in the individual’s inalienable right to pursue happiness as they deem fit bridle at this apparent attempt at state control of something as intimate as their nuptials. Economists who have taken it on themselves to justify everything official — policy, incentive, penalising tax, nudge — have waxed eloquent on the added momentum to economic growth generated by the boost to domestic consumption and economic activity yielded by lavish weddings. Perhaps, yet another response might deserve a look.

Should those who blow up small fortunes on lavish weddings be asked to spend the money locally or to spend less on weddings and more on capital formation, especially at a time of tepid investment? Many might find such juxtaposition of consumption and investment without taking into account the causal linkages between the two more than a trifle awkward. They could, perhaps, consider if the economy would gain more from bank credit going to finance consumption expenditure or from bank credit going to finance investment.

Social reformers around the world, particularly in India, have urged people to shun conspicuous consumption and use their riches to meet more worthy goals. Such advice contains both a moral injunction against flaunting one’s wealth and the practical consideration of accumulating capital, implicitly articulating the definition of capital as money used to generate more money. Of particular note has been the protestant ethic, of conserving capital and using it to produce yet more wealth, as a religious calling and duty to God. The protestant ethic has been hailed as a motive driver of capitalism in the West.

Setting an Aspirational Benchmark for Weddings

Does this kind of rationale apply to the kind of people who hold destination weddings abroad? Many of them do it out of their personal wealth and do not suffer from any scarcity of capital. Let us accept that those with the proclivity to conduct destination weddings abroad and the means to finance such indulgences tend to hail from the class of industrialists, for the most part.

They set an aspirational benchmark for those less well-off to emulate. Consumption is meant to signify social status, whether a fancy watch or Instagram posts of exotic visits abroad. The upwardly mobile might feel compelled to perform the right sort of consumption, to gain or retain status, even if they have to borrow to carry out such consumption. In the case of such aspirational consumers who borrow to consume, it is obvious that extravagance on the lines of destination weddings constrains capital formation in two ways.

For such borrowers, the capacity to borrow for capital formation gets constrained by exhausting a part of their eligible credit on lavish consumption. Now, credit is finite within a range, given the capitalisation of lending institutions and regulatory limits on lending, with assigned risk weights to types of loans and norms for minimum capital to risk-weighted assets. Further, exhaustion of a portion of possible lending on blow-out consumption leaves that much less lending potential to finance capital formation.

Some might argue that this might be valid for those who cannot really afford to spend on lavish weddings abroad from their own means and have to resort to loans, but would not apply to the truly well-off, who are more likely to perform such indulgences of style. Not true, because money is fungible.

Here, we are not going into whether or not project costs are padded to extract larger than needed loans to finance a capital investment, the excess loan going to the promoter for him to utilise as equity contribution, political contribution, wedding expenditure or pocket money to go scuba diving in the Caribbean. Let us suspend disbelief and assume every borrowed rupee goes directly to the stated purpose of borrowing.

Borrowing for Investment Needs

The same industrialists who organise lavish events in exotic locales tend to borrow money when they set up a project. If they had not spent a tiny fortune on such conspicuous consumption, they would need to borrow less for their investment needs. The credit notionally going to an industrial project actually is financing wedding expenditure, with the company in question having brought in less equity and more debt to set up the project than would have been required, minus that big splash abroad making it to social media celebrity.

Isn’t such expenditure tiny, compared to the total cost of setting up a project, and isn’t this notion of consumption expenditure starving valid investment intentions of needed credit truly fanciful? Individual elements often add up to a size not anticipated. Further, there is always the impact of what happens at the margin.

India is a credit-starved economy. Total bank credit to the private sector is just about 50 percent of GDP, while for market economies the ratio tends to be at least 50 percent higher. For Switzerland, with its well-developed banking sector, the ratio is 170.4 percent. The figure is 84 percent for the European Union as a whole, and 185.4 percent for over-leveraged China. The US makes do with bank credit to the tune of 60 percent of GDP, thanks to its vibrant market for corporate bonds, including high-yield, so-called junk bonds, from which even relatively small companies can raise capital.

A history of high inflation would make the culture credit averse, as would a primitive financial system. India is afflicted by neither. India has a long history of fairly sophisticated finance, medieval hundis preceding Europe’s bank notes, and commodity futures part of the tradition. The Indian economy makes use, in all probability, of credit nearer 100 percent of GDP, excluding the government, the informal market probably meeting a sizeable chunk of the economy’s credit needs.

Interest rates on credit outside the banking system tend to be high. In chit funds, which are segmented credit markets restricted to member-savers-cum-borrowers, the interest rate can be 50 percent or more. When a small-scale would-be borrower fails to get a loan from a bank, because the bank has used the marginal possible addition to its loan book to a wedding abroad, directly or indirectly, viral social-media-worthy weddings do hurt credit availability for production.

Perhaps, the PM could nudge the elite not so much to abjure lavish weddings abroad as to spend less on conspicuous consumption while advising the young to see 70 hours as a relaxed work week.

TK Arun is a senior journalist based in Delhi.

The article was first published in Moneycontrol as Lavish weddings at home or no lavish weddings? on December 5, 2023.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

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Acknowledgment: This article was posted by Aasthaba Jadeja, a research intern at IMPRI.

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