If there has been one unsung heroine, it has been the Indian consumer. After living the first 30 years like a member of George Orwell’s Animal Farm, the Indian consumer has taken like fish to water once the choice to spend was given in the next three decades. They never complained about the past and just drew unprecedented satisfaction from the present and hope from the future.
But now, even their resilience has begun to falter unless, of course, policy wonks and corporate India alike realize their folly of taking consumer demand for granted.
Policy planners have mistimed their every intervention in the last three years. What else can explain effecting a savage price hike when retail inflation is in double digits. Corporate India, on the other hand, so taken up by the good times, has either missed the message from the Indian consumer or chosen to ignore it; failing to recognize that Indian consumer demand, like elsewhere, is variegated—there is “no one size fits all”.
In either context, this blunder will be at the collective peril of the Indian economy. The fairy tale growth story has already witnessed a stumble; from the promised 9% growth, actual growth is likely to be just under 7% in the last fiscal, and if some cynics are to be believed, it will drop below 6% in 2012-13. The only thing that can turn it around is the Indian consumer.
Three months ago, it wasn’t this bad. But then the Congress-led United Progressive Alliance (UPA) decided to, after ignoring the problem for the previous eight years, embark upon fiscal consolidation; nothing wrong with the intent, the problem was the means employed. Just as the fiscal consolidation of 2011-12 was an effort on paper that came apart when the actual numbers came in, the latest attempt was premised on a questionable belief that the Indian consumer would survive despite three consecutive years of strong inflation and diminishing job prospects as economic growth slowed.
The fiscal consolidation is based on a huge increase in indirect taxes, through a combination of widening the tax base and increasing rates; it affects almost every consumer, the poorest the most. (Even the political economy of this policy flourish, as I wrote on budget day, is not right; the giveaways [around Rs4,500 crore] go to those paying income tax and the takeaways [Rs45,000 crore] are from indirect tax increases [which affect everyone who buys just about any product or service]. In effect, the government chose the haves over the have-nots.)
And, if this was not enough, last week, through a wink and a nudge, within hours of Parliament concluding its budget session, the oil companies swung into action and effected the steepest round of hikes in petroleum prices ever. And the buzz is that a correction is also due in the prices of liquefied petroleum gas and diesel. With wholesale price inflation dangerously near double digits and retail inflation having already scaled it, the timing is no doubt questionable.
For corporate India, the folly is similar. Like the government, it simply assumed that the good times are here to stay. So it has followed the cycle of pushing the top line when the business cycle was good and reverse quickly into a bearish mode (read as cutting back investments) during a setback. The approach adopted is that one would do in a mature economy.
India, on the other hand, being a developing country, has people with varying consumption standards.
Those at the bottom of the pyramid are actually an opportunity if the product and its delivery is tweaked using a lower price point. The one thing they have in common with those at the top is aspirations—so commodities such as education, health and transport are things they can purchase, providing a much bigger market than what corporate India has ever imagined. Since basic needs have to be met, this demand at the bottom of the pyramid can be counter-cyclical. If corporate India, favouring a rosier bottom line, cuts back on investments, then it is denying itself an opportunity and only reinforcing the downward growth pressures.
As management and market research consultant Rama Bijapurkar so aptly put it in an interview to Mint published on 13 March, “I feel India Inc.’s focus has been building a lean, mean supply machine, because there has just been so much buoyancy in the economy that you didn’t have to worry about the demand side at all. The number of things for people to buy is actually far more than income can support. We have a self-employed country largely, so you have no social security, and you have the next trillion dollars of GDP (gross domestic product) coming from aspirations to consume.”
According to her, there is no middle class. “It is (a) consuming class, which is my plumber, my carpenter, it’s you and me and the finance minister, and it’s everybody.” She is right. Viewed thus, you wonder why Indian corporate lobby groups constantly whine; in good times they lobby for concessions, and in bad times they approach the government for bailouts.
It is obvious then that the backbone of the Indian economy, the consumer, is beginning to feel the pressure. The solution is not so complex. It is as Bijapurkar put it: “I think what India Inc. and policymakers will really have to do is to think markets and consumer demand are made up of people, so can we start thinking about people when we start thinking about either policy on one side or strategy on the other?”
Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org
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