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The Rediff Business Special

'The Indian consumer revolution is a long way off'

The times are bad. There is political instability and panic in the stock markets. Industry has slowed down. Man to man, there is the growing fear of the visit of the income-tax officer if you fly frequently, buy a cellular facility, entertain lavishly at expensive clubs, or pick up anything upwards of a Maruti Zen.

Unluckily for Mercedes Benz, its advertisements for its old E-220/E-250D models came before or after inserts of the Voluntary Disclosure of Income Scheme ''97. Those too carried a picture of their car with the words, 'I''ve got a Mercedes in my wardrobe.'

But the VDIS scare is temporary. ''People have simply postponed buying to save,'' says CII''s Roy. ''After half your earning goes on food and much else on rental, transportation, utility and education costs, what are you left with to buy?'' asks FICCI's Bisht.

Take a loan. Bisht shakes his head. ''As a society, we still hate to live on loans. Those that buy cars are by and large cash-rich.''

Small and medium finance companies are chary of loaning anyway. Several have bad debts after a Supreme Court judgment made prosecution of those giving bouncing cheques difficult. ''And banks are very cautious lending to them even at the high interest rate of eight per cent,'' says Roy. ''They are very strict about maintaining the capital adequacy ratio.'' The finance ministry, she says, has been urging bankers out of this hoarding mentality.

There is more pressing need, she feels, for the government to spend. ''Real productivity will come if it increases capital expenditure.'' That dropped from a third of the Budget in 1980 to 30 per cent in 1990-91 and 21 per cent in 1997-98. ''The government has been the biggest buyer in defence, railways, ports, roads and so on. With its withdrawal, demand has slowed down. The private sector has not been able to fill the vacuum.''

To hear industry say it wants more government six years after reforms and decontrol that it said it couldn''t do without seems odd, if not perverse. But it does seem that when you hear cellular handset makers tell you they are OK in the government-controlled markets of China and Singapore.

"Here," said the head of a multinational, ''there is free enterprise and it is creating trouble.'' Aha!

Spending vs saving

When will India have a real consumer revolution? ''When the electric oven replaces the cooking gas,'' says a business specialist. That is a long way off. ''Rural India,'' he admits, ''has the largest market but it is still to balance leisure versus work.''

But consumption levels are low even in urban areas. Indian governments have been philosophically opposed to consumerism, stressing on savings. The industry''s view is that these savings were used to finance plan projects and that often there was an element of coercion.

But it is also admits that the absence of a social security system leads people to save. 'During the period 1960 to 1993,' says a CII study, 'real per capita private final consumption expenditure increased only at the rate of 1.4 per cent per annum.'

Indians consume far less than Pakistanis, Sri Lankans and Indonesians.

Shopkeepers vs supermarket

Those with experience of a small town or of Delhi that was smaller will remember his friendly neighbourhood store selling almost everything. It is another matter that prices, says FICCI's Bisht, went up three to five times sold at retail.

With multinationals becoming sensitive to the price-driven Indian market, they are looking at ways to cut costs. ''Your retailer could become a victim of cost-cutting.'' says Bisht. ''The whole concept of retail will disappear.''

Many companies, he says, are telescoping their operations. ''There will be a large number of supermarkets in urban areas. These will give better service.''

But ex-Thums Up boss Ramesh Chauhan is not so sure. Retailier margins, he says, are much higher abroad. ''That is why western consumer goods are cheaper here. Many foreigners shop for this reason in India.'' The other problem is that supermarkets can have, at best, a limited market. They cannot reach places that even tractors cannot access.

Replacement Cycle

Based on NCAER data since 1985-86

Push vs pull

In a market that seems not to be as big as it was touted to be, what works? Direct (or ''push'') selling a la Oriflame? Or creating a pull'' for its products through high-powered advertisement like Revlon does?

Lakme, a market leader, has done little direct selling. Products are displayed in ships where customers can choose from. That is also Revlon''s methods.

Oriflame India''s chief executive, Lajinder Bawa, is obviously uncomfortable with that. ''Our products,'' he says, ''are of a personalised nature. We give beauty advice and sell. We are ahead of Revlon.''

But Bawa who is conscious of the price-sensitivity of the Indian market agrees that anyone who earns Rs 10,000 a month ''cannot afford Oriflame products''. It has also been apparent that in the Indian context so far, functional products such as Eureka Forbes's water purifiers and vacuum cleaners are direct selling success.

Time will tell if the same thing will work with cosmetics.

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Kind courtesy: Sunday magazine