Indian Financial Markets

The Economy 21

evidence on the cyclical properties of consumption is not available. However,

we may hazard some conjectures. Consumption smoothing requires financial

depth through possession of liquid wealth such as securities, and it requires

credit access. At present, most households lack both kinds of tools for con-

sumption smoothing. Hence, it is likely that consumption in India is more

sensitive to the business cycle than in countries like the United States and

the UK.

1.3.7 LOOKING FORWARD

From first principles, economic growth comes from changes in labor, capital

and productivity. The discussion above has brought out strengths on all three

fronts:

• Demographics, education and learning-by-doing are generating a process

of improvements in labor.