Rama Bijapurkar | Demand story can only be good

Rama Bijapurkar | Demand story can only be good

New Delhi: The uncertain economic climate is unlikely to weigh too heavily on India’s consumption trajectory, management and market research consultant Rama Bijapurkar said in an interview ahead of the budget. Edited excerpts:

Is the Indian consumer demand theory intact?

What about rural demand? Is that intact?

I read in a newspaper that onion prices are down because we have a bumper onion crop, so I suppose we folks in the cities will have a little more money to spend. However, there will be a little less money relatively as far as rural India is concerned. But the thing about the rural consumption story is that, because it is so large, a large mass that moves even with a little bit of acceleration is still a very good story.

Between 2005 and 2010, rural India has added the equivalent of one-and-half (times the) population of Australia to television sets, to mobile phones and to various other things. So I think the rural story is not perhaps what it was in 2008-09. You actually had a confluence of factors that came together—from road connectivity to loan write-offs to minimum support prices going up every year—so that the alignment of stars is not perhaps going to be the same. But the consumption story is intact. India is a group of mini Indias, so sometimes one is up and the other is down.

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Marketing strategy consultant Rama Bijapurkar says that while consumer demand in India will continue to grow, the golden years are behind us.

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Is rural demand down and urban demand picking up?

Relatively speaking, I think so. There is also the whole business of how the numbers work. Let me give you an example. During 2008-09, we had postponement of purchases. Then on a low base, you start seeing a high take off. Then on the high base, you start saying it is not as good as it should be. So part of it, I think, is a trick of numbers, but yes, in India you will always have to look at the different parts and see which one will be up and which one will be a little less up, and that is inevitable, there is no getting away from it.

When you look at the budget, there are many ways in which it can affect demand. It can do so through MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), excise rejigs or incentives in terms of tax giveaways. Do you feel this budget, given that growth is slowing, will seek to stimulate demand?

I am going to leave it to the captains of industry to second-guess the finance minister. But I do want to say that things like GST (the proposed goods and services tax) for example, are really good for the industry, but have nothing to do with consumer demand. Similarly, even if you have FDI (foreign direct investment) in retail, it is not suddenly going to start bringing prices down. In fact, if anything, in the short term, some people will lose. If you are saying more cash in the hands of people, well obviously, that does help. But theoretically, NREGA and other such schemes basically are meant to help subsistence-level people live a little better. The fact is that there is always a lot of cash sloshing around the system and so it feels good as far as demand is concerned. If you slash taxes, then the rich who are paying taxes will have a lot more money to spend, and that will be good. But by and large, I am not even sure whether the budget is made to stimulate consumer demand unless you are going to slash excise duties and things like that in a very big way.

But the buzz is that he might actually raise excise duties, rolling back the stimulus initiated three years ago. Will that be a dampener?

When prices go up, yes, demand is going to suffer. But when you say demand is coming down, for example, when banks gave credit all the way below income levels, the two-wheeler business boomed.

Now was that good demand or bad demand? And, when you start saying, I am going to suddenly discover that there are things called NPAs (non-performing assets) and I can’t have NPAs and retail as much as I want, and everybody starts getting tougher. Then there is less credit that is given and people buy less. So there is variation and volatility. But when things get expensive, people buy less. So the glory days of having excise duty come down, competition having pushed prices lower and people’s income going up, which was in the last part of the 1990’s, are over. Everyone has to work harder for their consumer demand now. But, the demand story can only be good.

The last economic survey talked about how inflation has to be adjusted to a new normal. There is speculation that the government will roll back subsidies, which will lead to inflationary pressure. But you think demand is resilient enough and will stay buoyant?

We have really had a dream run where we’ve not had to pay too much for education, we have had subsidies, we got LPG (liquefied petroleum gas) and petrol cheaper, excise duties kept coming down, so in fact we have created a monster consumer. So it has been toward the last five years of the 1990’s and in 2000 to 2005-06, I think, we have seen that happen. So that is true.

We have seen growth at a breakneck speed of 30% and anything less than 30% and people are saying these categories are growing slowly only at 20%. That’s a bit bizarre. If you are saying, will the Indian consumer continue to be resilient and grow at those rates, then well clearly not. But then there are many more people, who are beginning to continue now. So, earlier there was a little thick creamy layer that became a bit thicker, but now the bottom is rising slowly. Sometimes it is class, sometimes it is mass. But, the picnic is over.

So you are saying that class consumption might get hit given the circumstances, but mass will continue because newer replacements will take over where others have got used to a certain standard.

I think it will fire on both cylinders for one simple reason—if you actually project the growth rate we actually have had, which is the whole inequality argument, it is a fact that the top 20% of India have increased their incomes far greater than the bottom 20% of India. However, the bottom 40% of India grows from the lower base, it grows quite healthily. But consumption over the next five years will also be the rich getting richer. On the other hand, when the stock markets get hit, it is the rich who postpone their second homes and other such stuff they are used to. You have to balance both. I think class is good and mass is good. I think class consumption will continue to grow regardless, because they are the people best equipped, but it will be much more volatile.

While welfare schemes and stimulus packages can create a surge in demand, the problem is cash transfers do not have the multiplier effect that you would have if you created an asset class. The lack of a multiplier effect adds to volatility. Do you see that happening in case the finance minister aims to balance the fisc?

Yes, but there are two parts to it. One part is that if you actually calculate the total NREGA amount and divide it by the total households, the total amount of additional money each household will get is not that much to create this great incremental demand. But where there is an increase, there is a lot of money sloshing and leaking in the system, and that entire money generally is causing a lot more consumption. So, it is not just the beneficiaries of NREGA buying or not (doing so).

Having said that, if you remove all the money sloshing in the system, yes it does create volatility, but so does the monsoon. India is a problematic market—not only do we have monster consumers, who have been trained to expect better for cheaper over the last 15 years, I also think there are many Indias. It’s like a musical fountain—sometime one comes up, sometimes the other comes up, and you have to be prepared for the portfolio that can deal with all of them.

How does corporate India deal with this kind of volatility?

So far, generally, the tide has been good. But I think what corporate India does is it operates in two modes. When generally things look good, like the stock market, it gets very bullish, it starts pushing the topline, it advertises more. The minute there is a sign of trouble, I think they needlessly start to panic, and they start getting into a bearish mode, and then you will find for many quarters that the topline does not grow as fast as the bottom line grows.

So, corporate India has got used to topline growth, bottom line growth, so it creates its own volatility, which is yet another factor. It creates much greater amplitude than needed, and I suspect it is also because there is a bit of confusion between the stock markets and the other markets.

In your book, you signal that corporate India has ignored the structural nature of Indian demand and this luxury is no longer available. Could you elaborate a little?

I have written the book (Customer in the Boardroom?: Crafting Customer-based Business Strategy) to say: can we bring the customer into the business strategy process? 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 coming from aspirations to consume. So, we are going to be paying for education, health, water, private transport and everything else, plus withdrawal of subsidies. So, if you look at it, there is going to be a real choice between paying a health insurance premium and your child’s school tuition fee and buying a new car.

Would it be fair to say that the government needs to factor this as a variable of both the issues— quality and spending—and recognize the stratified consuming class in the country?

If you look at per capita incomes, we have Brazil, Indonesia, and Bangladesh in the same country. We also have Bihar, which is emerging, and Maharashtra or Punjab or Delhi, where per capita incomes are increasing. So when you say I have a particular picture of a customer in mind for whom I am going to do policy, you have to have segmented strategy, you have to put the customer at the centre. If you want consumer demand, then you have got to tackle the top end as much as you have to tackle the bottom end. And this average Indian does not really work. The middle class is actually the upper class. There is no middle class, it is consuming class, which is my plumber, my carpenter, it’s you and me and the finance minister, and it’s everybody.

If you have to leave us with one thought on the consuming class and the budget, what would it be?

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?

Moulishree Srivastava contributed to the story.