Amid the West Asia crisis, Prime Minister Narendra Modi has appealed to Indians to watch their expenditure and cut down on discretionary spending. But what does this really mean, and is it a sign of concern for the economy? To understand this better, India Today spoke to NITI Aayog Vice Chairman Ashok Lahiri, who decoded the idea of “national austerity” and what it could mean for households and the wider economy.
The Prime Minister’s message is mainly about reducing non-essential spending. This includes things like luxury purchases, , gold imports, and big-ticket celebrations such as expensive destination weddings.
According to Lahiri, this is not about stopping spending altogether. Instead, it is about encouraging people to save more during a period of global uncertainty, especially when oil prices and geopolitical risks are high.
“National austerity is another term for national savings,” Lahiri said.
He said savings are important because they directly support investment in the economy. Countries like China and several East Asian economies have grown rapidly by saving a large share of their income and investing it back into development.
India, he pointed out, saves less compared to these economies, which means there is room to improve financial discipline at a national level.
One of the key points raised was Lahiri said India already holds a large amount of gold, much of it imported over time, and continued imports put pressure on foreign exchange reserves.
He suggested that gold is not always the best store of value when compared to other financial assets like mutual funds, stocks, or bank savings.
He also mentioned that reducing spending on items like gold and luxury events can help ease import pressure, especially in uncertain global conditions.
A common concern is whether reduced consumption could slow down the economy. Lahiri said the economy depends on two main drivers, i.e., consumption and investment.
If people consume less but investment increases, the system remains balanced. However, if both consumption and investment slow down, it can become a problem.
He added that India is not currently facing a strong “under-consumption” issue. Instead, the focus should be on ensuring that savings are properly converted into productive investment.
Lahiri warned that the biggest uncertainty right now is oil prices, which have been rising due to tensions in West Asia.
Since India imports more than 85% of its oil, any sharp increase in prices directly affects inflation and economic growth.
He said if the crisis is short-lived, the impact will be limited. But if it continues for a longer period, the economic pressure could increase significantly.
According to Lahiri, such government appeals work mainly as a “nudge” to influence behaviour. But he said nudges alone may not be enough.
They usually need to be supported by policy measures like tax changes or market adjustments to have a stronger impact on imports and spending patterns.
Investment depends on stability and reforms
Lahiri also said that investment decisions, both domestic and foreign, depend heavily on stability and confidence in the economy.
Uncertainty in global markets can delay investment decisions, as investors prefer to wait and watch.
At the domestic level, he highlighted the importance of education, health, infrastructure, social stability, and a corruption-free system to attract long-term investment.
Despite concerns, Lahiri noted that India’s growth rate of around 6% remains strong in the current global environment. He said many major economies are growing at much slower rates, and India continues to be one of the fastest-growing large economies.
While higher growth is always desirable, he added that maintaining stable growth during global uncertainty is itself a positive sign.
In other words, for Lahiri, the government’s message is ultimately about preparing early rather than reacting too late. He believes it is better to be careful now than face bigger problems later if the West Asia conflict deepens.
“It’s better to err on the side of caution and be careful,” he said. “A stitch in time saves nine.”