Trouble viewing this email? View in web browser

Friday, 15 Oct 2021
A newsletter that demystifies complex economic jargon and explains how it impacts your everyday life
By Vivek Kaul

Here's a great value proposition

A digital subscription to Mint can be yours with a flat 10% off (Up to 25% with bank offers), at just â‚ą192 per month. But hurry, it's a limited period offer. Check out the convenient and affordable plans we have for you here.

What Indian Unicorns Really Want and Perhaps Don’t Even Know About

Prefer audio? You can also enjoy this newsletter as a podcast.

The business school I wasted 22 months of my life had very few permanent teachers. It worked on what I now like to call the Pune model of business schools. Nearly the same set of teachers freelanced at the best business schools in the city, which helped everyone keep costs low.

As far as business models go, it was a terrific one, with presumably a very high return on capital employed for the business school entrepreneurs, but as far teaching models go, it was a pathetic one.

The freelance teachers we had had the habit of using two terms repeatedly, paradigm shift and value. While the teachers meant what they meant, the students soon picked up on this trend, and their presentations were liberally littered with these two terms.


In most cases, a paradigm shift seemed to be happening, and if that wasn’t the case, we were adding value. So I figured that paradigm shift was a term that was to be used when you were really out of your wits and didn’t know what else to say.

But value was slightly tricky, as it is even now. It is a tad like what American Supreme Court Justice Potter Stewart said in the 1964 Jacobellis versus Ohio case while differentiating between a motion picture and pornography: “But I know it when I see it, and the motion picture involved in this case is not that [pornography].”

Value is like that. We know it when we see it. Like some time in 2006, I took my mother to Café Mondegar, in Colaba, Mumbai, for what I thought was a great breakfast. My mother wasn’t impressed with what was served and the price.

She didn’t see much value in it and felt that she could have easily cooked all this at home. My point was that we came here because we didn’t want to cook on a weekend morning. So I saw value in paying for the breakfast. My mother didn’t.

Value means different things to different people. But at the end of the day, for an economic transaction to happen, the side paying must see some value being added and only then will they pay for it.

As Milton Friedman writes in Capitalism and Freedom: “Since the household always has the alternative of producing directly for itself, it need not enter into any exchange unless it benefits from it. Hence, no exchange will take place unless both parties do benefit from it.”

Like in the case of the breakfast at Café Mondegar, my mother didn’t see any value because she felt she could have made a similar breakfast at home for probably a fraction of the cost. If she were the one paying, this transaction would have never happened. On the other hand, I didn’t like the idea of her or me cooking on what was a weekend morning. So, we went out for breakfast.

At other times, I have felt cheated while paying Rs 250-300 for a cold airline sandwich which was probably packed 12 hours before I got around to eating it. Nonetheless, I still paid because then and there, I was in no position to make an alternative arrangement.

Dear Reader, before you start scratching your head on why I went on a long rant on value this Friday morning, allow me to explain. In this issue of the newsletter, I want to talk about how the long-term value of the businesses that the unicorns are in, is intricately linked to a big economic trend in the country as it is playing out.

Fewer Indian women are working

Over the years, the proportion of Indian women working has been falling. (When I say women working, I mean women working in jobs and getting paid for it. This is an important point that needs to be kept in mind. All women work at home. Most men don’t.)

Take a look at the chart below, which has been sourced from World Bank data. It plots the female labour participation rate, which is the proportion of women aged 15 or above and who are economically active.

The proportion of women working remained more or less stable between 1990 and 2005 when it peaked at 31.8%. It has largely been falling since then. In 2019, it stood at 20.8%.

Interestingly, the Centre for Monitoring Indian Economy (CMIE) data shows a similar but much worse trend. Take a look at the following chart that plots the female labour participation rate from January 2016 onwards.

As can be seen from the above chart, the female labour participation rate has fallen from a peak of 17.7% in May 2016 to 10.2% in September 2021. In fact, in urban areas, the rate is down to 7.8%. In rural areas, it was at 11.5%.

While the CMIE data shows that the situation is much worse than the World Bank data, both show a sharp downward trend when it comes to women working.

Why is this happening?

Broadly, this is a global trend as well. Between 1990 and 2019, the female labour participation rate has fallen from 51.2% to 47.3%. But the fall in the Indian case is much higher on a significantly lower base.

One explanation is that women are spending more time in school and college, which is a good thing. But that can’t possibly be the only reason behind this massive fall. Another reason offered is that incomes have risen, and given the social attitudes that prevail towards women working, fewer women have been allowed to work by the men in their families.

This could have been true until 2014, when the growth in disposable incomes was in double digits. Since then, the disposable income growth has been less than 10% per year. In 2019-20, the growth was at 6.8%, whereas in 2020-21, the disposable income saw a contraction of 3.8%.

Also, it is worth remembering that this is the average disposable income growth of an Indian and not the disposable income growth of an average Indian, which is a very different thing. The point is that the disposable income growth of an average Indian must be lower than the average disposable income growth of an Indian. In this scenario, the logic that fewer women work because of higher household incomes doesn’t hold.

One reason that perhaps makes sense is that the structure of the Indian economy has changed over the years. The contribution made by agriculture, a large employer of women, to the Indian economy has been shrinking. At the same time, there has been increasing mechanization in agriculture, which may have put many women out of their jobs.

Typically, this workforce could have moved to other sectors which tend to employ women more than men. But that doesn’t seem to have happened. As The Economist pointed out in February 2021: “India’s notorious red tape has restricted the growth of labour-intensive, female-friendly industries such as the garment trade, which has prospered next door in Bangladesh.” This has also meant fewer jobs for women.

I think there is much more to this trend than is currently known, and clearer explanations need to emerge. Of course, this is a major reason to worry about, given that it impacts all kinds of things, including the chances of women being allowed to work by their families.

When it comes to social trends, the peer effect is powerful. When more women work, the chances of even more women working go up.

As economist Erica Field and her colleagues write in a 2019 working paper: “Strengthening women’s economic agency can potentially unleash broader social change, especially as more conservative men update their beliefs about the social costs of adopting progressive behaviours.”

In the regular scheme of things, I would have ended this piece here. But we live in a world where all of us, including me, want to know what this means for me. Oh, and what about the word unicorn in the headline. Was that just clickbait? You will get these answers and more. So, do continue reading.

What does it mean for me?

Fewer women working is a symptom of the overall disease, which is lower economic activity and hence, fewer jobs going around. The labour participation rate among men has also fallen. According to the World Bank data, it fell from 84.7% in 1990 to 75.9% in 2019. CMIE data says it has fallen from 75.1% in January 2016 to 67.3% in September 2021. This means that people who do not find jobs drop out of the labour force.

Fewer jobs mean lower income for many households, and lower-income means lower spending. Lower spending means lower business opportunities. This explains the broader consumer spending slowdown over the last few years.

It also tells us about another trend. The fact that the labour participation rate has been dropping means many people who need jobs cannot find one. Despite this, the economy has been growing (except in 2020-21). This basically means that the economic growth has been limited to the well-to-do section of the population and it isn’t equally distributed across different sections of the population.

Let’s take a look at this specifically from the point of view of women working and earning more and the impact it will have on the future growth of unicorns in particular and businesses in general.

Most unicorns in India are in the service business. Take the case of Zomato or Swiggy, which primarily deliver food from restaurants. A household with a working woman is likely to see more value in ordering food. There are two reasons for it. One is that a working woman would have less time to cook regularly for her family and hence, is more likely to order (Most men in Indian homes don’t cook). Also, she would have the money to order and wouldn’t have to depend on her spouse or partner.

The same logic would work for a whole host of grocery delivery apps. A woman with less time would prefer to get stuff home-delivered than going to the local market.

A household with a double income is more likely to travel more. So, people are more likely to use an app like OYO (or other such apps).

Or take the case of Nykaa, the online beauty aggregator. It will clearly benefit if more and more women take up jobs and the female labour participation rate increases. Even the likes of Ola Electric will benefit as more women work and need a vehicle to move around.

Of course, as women work more and earn more, everyone from Amazon to JioMart to Flipkart will also benefit. So, will the likes of PhonePe and Paytm and Netflix, Amazon Prime and Hotstar.

All in all, it’s in the interest of these companies, many of which are unicorns, that more women work and spend. Of course, this is a classic long-term demographic trend that cannot be easily quantified. Given this, we don’t hear these companies talking much about this trend.

Having said that, in July 2018, the Economist had pointed out that “a rise in female employment rates to the male level would provide India with an extra 235 million workers.” This would lead to the country being 27% richer.

On the flip side, if fewer women work, as they currently are, things will not turn out well for many businesses, unicorns or otherwise. And this is a risk that unicorns and other entrepreneurs at least need to be aware of.

Now given that many of them are in the middle of raising capital through venture capitalists/private equity firms or initial public offerings, they are not going to admit to the same. Also, rarely do entrepreneurs forecast a risky future about their business.

As Olivier Sibony writes in You’re About to Make a Terrible Mistake: “The project may be risky, but the forecast associated with it is subject to overconfidence. Invariably, projections for sales, profits, time to completion, and so on will be overoptimistic. Just as importantly, overprecision will lead the decision-makers to overstate the degree of confidence they have in these plans. The goal, for the plan’s author, is to present the project as almost certain to produce a satisfactory outcome.” Also, projection of confidence leads to less scrutiny.

This is as applicable to Indian unicorns as it is to other businesses. The trouble is that the female labour participation rate puts a big if on what these businesses will eventually become. This is India’s so-called demographic dividend, which was supposed to go out there and work and earn and spend, and put India on a path of fast economic growth.

Or so we have been told for the past two decades. But that, as we are seeing, isn’t turning out to be the case. That’s the trouble with life.

Many things we think are true and take for granted don’t turn out to be like that. Take the case of the superhit Bryan Adams song, Summer of ’69; it turns out even that is not about the summer of 1969.

To conclude, business performance can’t be unrelated to the economy all the time, as it currently is. Ultimately, like it is in life, things do tend to catch up. And they eventually will.


Vivek Kaul is the author of Bad Money and was once labelled Twitter’s favourite economist. Have any feedback? Send in your bouquets and brickbats to him on Twitter.

Were you forwarded this email? Did you stumble upon it online? Sign up here.

Download the Mint app and read premium stories
Google Play Store App Store
View in Browser | Privacy Policy | Contact us You received this email because you signed up for Mint Top of the Morning or because it is included in your subscription. Copyright © HT Digital Streams. All Rights Reserved