What is a Shared economy?
A shared or sharing economy is a socio-economic system that advocates sharing human and physical resources for the benefit of all. It includes the shared creation, production, distribution, trade, and consumption of goods and services. A sharing economy system finds its roots in the ancient barter system wherein goods and services were bought and sold without monetary exchange.
The evolution of the internet and digital connectivity has given theshared economy a boost like never before. Through digital mediums, it is now possible to monetize skills and create opportunities to use underutilized resources suitably.
Shared economies fall under the following categories –
- Exchange of services – Think of this as a barter of services. Suppose someone wants to learn gardening, in exchange for gardening lessons, they offer classes in the German language.
- Sharing of productive assets – This category of shared economy involves the joint purchase of productive assets for use by everyone. For example, five farmers pooling money to buy one tractor that everyone can use.
- Recirculation of goods – The recirculation of goods in a shared economy refers to the sale and purchase of used goods. Let’s say you bought a wooden crib for your baby boy; once he outgrows it, you sell the crib to your friend who has a newborn baby.
- Increased utilization of durable assets – This category of the sharing economy includes renting out cars, homes, and other stable assets. One good example of this category of shared economy is homestays like Airbnb.
The distinguishing factor of a sharing economy is the ability to bring people together. Usually, it is done through an online platform to share or exchange goods and services without high costs. Here is a look at the different types of shared economies thriving in India and the reason for their success.
- Peer-to-peer Lending – Those looking for financing options have found a lucrative option in peer-to-peer lending companies. P2P lending refers to online chit funds that build a pool of funds with minor contributions from members. This pool is then available as a loan to any member in need. These P2P lending firms offer a much lower interest rate compared to banks and credit card companies.
- Crowdfunding – Online crowdfunding platforms are dedicated to connecting artists and patrons to help artists who need funding. Crowdfunding is a win-win situation wherein artists find the support they need to get their creative projects off the ground, and those interested in investing in art can find worthy artists to do so.
- Co-working Spaces – Co-working spaces like WeWork are a boon for young entrepreneurs, freelancers and start-up companies. You can rent a portion of the office or a single desk without worrying about the overhead costs.
- Parking Space Rental – In a crowded country like India, traffic and parking spaces are a big problem. Online platforms such as Park India help drivers find the nearest available parking space and guide the driver towards it.
- Ride & Car Sharing – Taking the concept of carpooling forward, cab services such as Ola and Uber now offer ride-sharing services. In this setup, anyone can register their vehicle as a taxi and provide rides for a fee. Secondly, the car can offer a shared ride to up to four people on the same route. Passengers share the ride and the cost.
An Assessment of the Indian Shared economy& the Growth Potential
In India, the proliferation of mobile phones and growing internet penetration has created significant opportunities for shared economies. As most of the sharing economy companies leverage mobile phone technology to reach consumers, their business is poised to grow with the growing number of mobile subscribers. The sharing economy in India is projected to grow at a CAGR of 139% in the coming years.
Benefits of a Sharing Economy
- For Consumers: Consumers receive numerous benefits from a shared economy, including low-cost services, on-demand services, convenience, and various options to choose from.
- For Businesses: Small and medium businesses benefit from shared economies due to the better utilization of infrastructure, access to a broader consumer base, and increased opportunities for small entrepreneurs.
The most prominent driving force behind the Indian sharing economy is the urban millennials. Adept at technology and open to trying new formats of services, the millennial population in India finds the sharing economy convenient and cost-effective. The opportunity for growth of shared economies is significant given the demand, market dynamics, and consumer preferences.
Aatish Khanna works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficient. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.