While most of the debate about loses in business have centered around players in the hospitality industry, contractors and others, there is a big group of small business houses, whose voices have not yet been heard, but have been hit very hard post covid. These are the entertainment centers, coffee shops, restaurants, garment sellers and others. According to an expert and the people, the sudden and drastic reduction in discretionary income, brought about by reduction in income due to other reasons could be the main cause behind it.
“Discretionary income includes money spent on vacations, and nonessential goods and services. Because discretionary income is the first to shrink amid a job loss or pay reduction, businesses that sell discretionary goods tend to suffer the most during economic downturns and recessions,” a financial expert said. Job losses, inflation and other factors have severely affected income and thus discretionary income. “Even my discretionary income has been affected and I no longer have the luxury to give money to my kids for outings to coffee shops or for going to parties. This then affects the small businesses,” he said.
The experts also said discretionary income is in many ways the primary driver for a market-based economy. As the overall economy’s success is based on the growth of production and spending, a key component of a flourishing economy is increasing discretionary income. He added that this income can be allocated or used in three primary ways. “It is through spending, investing and saving. When people spend more of this income, on goods and services, vacations, luxury items, and other nonessential items, money is funneled towards businesses that provide those goods and services,” he said. The businesses can then reinvest the earnings to grow their operations, which leads to more jobs and further increases discretionary income.
When people invest more of their discretionary income, it provides capital for businesses as well, which can then be used to expand the businesses and lead to more jobs, as well as increased discretionary income. As the investments are expected to generate some return to the investor, it is increases the investor’s discretionary income later. “And we know the benefits of saving,” he said.
Going further, he said that the justifications for increased consumer spending is generally derived from what is called as the “circular flow of economy” model. According to this model, cash flow in the economy is circular in nature. So, the spending of one person becomes the earning of another person and the spending by the second person becomes the earning of the first. Based on this model, spending is what keeps the economy alive.
Spending is also considered as the main factor leading to increased employment and job creation. When spending diminishes, people lose their jobs. The overall negative sentiment will lead to few people buying even fewer goods. “Many economists like Keynes believe that this leads to a downward spiral which is self-reinforcing and the belief is that it is this downward spiral that causes a recession and as the spiral is self-reinforcing, it is difficult to come out of recession,” he said, adding that excessive spending has their own pitfalls. .
“From the little that I know, discretionary income is the amount of an individual’s income that a person is left with for spending, investing, or saving after paying taxes, personal necessities, such as food, shelter, and clothing,” the Chairman of the Guide Association of Bhutan (GAB), Garab Dorji said, adding that during the “hey days” of tourism, those in the hospitality sector, especially guides, had “abundant discretionary income.” “Guides used to be the main customers of the entertainment industry and others as they always knew that another pack would be coming, even if they exhaust whatever they have,” Garab said. According to him, the situation is now different.” I know that small businesses have been affected,” he said.
Speaking along the lines of the economy expert, a hotelier said that he hardly sees friends gathering for dinner and drinking like fishes. “Earlier, almost every weekend, we used to have groups of friends in large numbers coming out for dinner and drinks. What they used to spend would equal almost our earnings of the week days. But this has declined drastically and when I ask some customers I know, they acknowledge that their purses are tight,” he said. The hotelier also said he had to let-go some of his employees.
A retired corporate employee said that twice in a month, she used to take her kids out to coffee shops. “I have cut it down to once a month now, as I no longer have the discretionary income like I used to,” she said. When asked the reasons, she said business is low and the consultancy works she used to get, especially from the hospitality industry has declined.
Tshering, an employee of an entertainment center in Thimphu said people coming out have decreased. “There are many entertainment centers in Thimphu and sometimes I wonder how we can all survive,” he said.
Will the upcoming pay revision address this situation? “We are hoping that it does. Even if a person or a household’s discretionary income increases a bit, it will definitely spill over to us. We will then be able to pay our employees well, who can then spend on buying doma etc. Everyone benefits; it’s a cycle,” proprietor of a garment shop in the capital said.
Nidup Lhamo from Thimphu