India Transformed

by Rakesh Mohan

  In 1991, there was just one government-owned airline and one government-owned broadcaster. Today, 439 television channels are available at just Rs 7200 a year—under $10 a month—and 73 direct flights operate every day from Mumbai to Delhi, enabling you to fly without too much planning, at as low as Rs 7000 for a distance of 1400 kilometres. Earlier only the rich could afford to fly. In 2016, there were 100 million domestic passengers.

  India’s first cellular service was launched in 1995 with the unbearably high tariff of Rs 16 per minute and additional payment for incoming calls, which made it totally inaccessible to most Indians. Today, there are over 1 billion cell phone subscribers and typically, local calls cost Re 0.80 per minute—(amongst the lowest in the world)—and long-distance calls Re 1.15 per minute. All incoming calls are free and text messages cost less than Re 0.50 apiece. The price of the smartphone has come cascading down over the years and, today, for Rs 5000, you can buy a smartphone with a multitude of features.

  This supply-side renaissance has been matched by steady income growths buttressed by the increasingly easy availability and quantum of consumer loans. India’s per capita gross domestic product (GDP, adjusted for purchasing-power parity by the International Monetary Fund) grew five times between 1991and 2015 and retail credit almost ten times.

  It must be pointed here that India in 1991 was not a virgin consumer market (like China was when it opened up its economy): it was a partially decontrolled economy and already had a vibrant branding and marketing environment in a fair number of product categories. Consumers were exposed enough to it to have their appetite whetted, and were thirsting for more. Unleashing the animal spirits of marketers in such a fabulously fertile environment caused the consumption of everything to explode (in turn, fuelling economic growth) and the explosion has been resoundingly large.

  An Uninterrupted Ride

  Indian consumers have been on a winning streak since 1991. Unlike, say, the United States where median incomes have not grown for well over a decade, Indian households have seen a steady increase in their income and quality of living. Stock-market bubbles and housing bubbles have not come and wiped out pensions and life-savings of people, partly because many Indians do not have their savings invested directly or indirectly in the stock market, and partly because only a quarter of Indian households have formal debt. The steady pace of growth in incomes has meant that children often start off their working lives earning more than their parents did at the end of theirs. As a result, the pace of improvement in Indian lifestyles has been staggering and palpable even if one were to take stock every few years. All this has resulted in very high consumer confidence which, even when dented on occasion, has quickly bounced back with extraordinary resilience.

  Of course, there have been good years and bad ones since 1991. Consumer India’s road to increased consumption has hit many speed bumps, but, given the diverse nature of Consumer India, not everybody gets affected at the same time. When the American economy sneezes, the 8 to 10 million people and their dependents who work in the IT sector catch a cold and bonuses stop coming in and their spending freezes. Every eight years or so, 12 to 14 million government employees get wage revisions with retrospective effect and the sizeable bonanzas earned boost consumption even if other sectors of the economy are down. There have been some years when rural consumers suffered from continuously bad monsoons and others when urban consumers suffered on account of runaway food inflation. The after-effects of the North Atlantic Financial Crisis of 2008 was felt by those, mostly urban, consumers who worked in the globally integrated parts of India’s economy, and it was a bolt from the blue that interrupted the glory years of 2003 to 2008 when household income grew in double digits each year. However, in less than two years after 2008, the stock market and auto sales bounced back, and interestingly, the crisis of 2008 did not affect the rural consumers too much. In fact, they thrived and their incomes and consumption levels grew because of the serendipitous confluence of five years of steadily increasing minimum support prices for their crops, a one-time mega boost in road connectivity, a write-off in February 2008 of Rs 60,000 crore of outstanding bank loans by the government1 and five successive years of good monsoons.

  The period from 2013 to 2015, saw the reverse. Urban consumers were happy and urban consumption was on the upswing but it was a dismal period for rural consumers because of poor monsoons (43 per cent of rural income is agriculture based and 75 per cent of rural households have some degree of dependence on agriculture) and a slowdown in construction activity which affected a large number of rural consumers who worked as construction labor, because of an over-leveraged real-estate sector that was having a severe hangover.

  Chinese Invasion and e-Commerce Revolution

  But even through the bad years, there has always been upward mobility in income and quality of living, even if not always in line with consumers’ desires or past experiences, and the supply side kept getting better. While the consumption lift-off from 1991 till mid-2000 was driven by the move from bad supply to good supply and the accompanying income growth, two more booster rockets fired after that lifted consumption even higher. The first was the flood of low-priced Chinese goods and their steadily improved quality, especially after 2008, when the excess capacity in China found an outlet in India. China has contributed greatly to Indian consumers’ well-being, as we can see from the unimaginably low prices and improved quality of Chinese goods flooding Indian markets over the years. The ‘made in China’ label has moved up in consumer perception from being one of ‘cheap and shoddy’ goods, translating into bad value for money, to one where the quality is ‘good enough’ and the prices affordable. No wonder then that everything from Ganesh idols, Diwali decorations, plastic mats, earrings to apparel are now made in China and made for India. In the lower-income groups, children are now far better dressed; women have more saris and colour-coordinated salwar suits apiece; rough woollen winter clothes have been replaced with smart nylon windcheaters; there are fancy plastic jars in the kitchen and fancy hair grips and school bags for children. Indian consumers are buying Chinese-made little thumb-sized plastic fans attached to the cell phone to cool you as you read your SMSs and squeaky shoes with blinking lights to ward off snakes as you walk home through the fields.

  The second booster rocket that lifted middle- and upper-income household consumption was the rise of digital access and the advent of e-commerce. Born at the right time, e-commerce took off, fuelled by the confluence of steadily decreasing smartphone prices (largely on account of Chinese manufacturing), telecom companies advertising heavily to promote data usage at very low rates, modern physical retail bleeding from high rentals and not investing in customer excitement, and crumbling physical infrastructure and traffic in most big cities which made shopping an unpleasant experience. It offered an unimaginable variety of popularly used products at very low prices with exceptional service, all fuelled by venture capital. While physical retail remained staid and predictable, e-retail offered the excitement of discovery of a pan-Indian supply canvas—a plethora of boutique apparel and accessories and home-care brands, handicrafts, black rice from the Northeast, electrically operated grinding stones from south India, rare Ayurvedic and herbal medicines and more. E-commerce offered cash on delivery to those who didn’t trust online transactions and easy returns, no questions asked (a boon to fashion and apparel buyers). A popular online furniture store even ran a television campaign that had a lady looking at a massive chest of drawers, which had been hauled up many floors, and saying she wasn’t sure if she really liked it, after all. The customer-service person at the other end of the phone line replied cheerfully and empathetically, ‘No problem, we will take it back!’

  E-commerce and the sharing economy are just what the doctor ordered for companies to be profitable in a demand structure like that of India where a lot of people consume a little bit, each adding up to a lot, scattered over a large geographic area. Most companies have put a digital heart into their bu
siness that allows them to do this. And it is also just what the doctor ordered for Indian consumers who want to take an occasional bite of things they cannot afford to consume regularly. The sachets and so-called ‘paisa packs’ that drove the penetration of soap, shampoo, tea, cosmetic, etc. and enabled ‘regularly occasional’ consumption now have their conceptual extension in Uber and other ‘rent a party dress’ type of services. A whole host of new services has come into play which allow for dynamic pricing (think cheap airline tickets and hotel rooms), greater convenience in purchase (a registered mobile number is all you need to have, the rest is done by them), new services like the one where you go on a train journey and pre-order what you want to eat at any given station along the way, to be delivered to you or to your entire wedding party, hot and fresh, and so on.

  Counter-intuitive Consumer Behaviour

  Indian consumers rapidly became more adventurous and demanding. Religiosity has always been very high among Indians and a new god was added to their pantheon—the god of consumption. The story of India’s consumption journey can be told blandly and forcefully merely with numbers and analogies—how a small percentage increase in the penetration of refrigerators can add an Australia-population equivalent of refrigerators to India, how the steady growth in two-wheeler penetration makes India the largest two-wheeler market in the world, how by 2020 or 2030, India will be among the top five consumer markets in the world for almost everything. Indeed, it has often been told that way. But it also needs to be told through the counter-intuitive story of how Consumer India evolved. At every step of its evolution, it defied the assumptions of global consultants and multinational companies (MNCs), who believed that Indian consumers would modernize as India globalized and would soon be indistinguishable in their consumption behaviour and choices from their counterparts in the more developed world. Proof of the global consultants’ belief that all consumer markets would evolve in exactly the same way, based on the single factor of per capita income, can be found in the plethora of reports that came out in the decades of the 1990s and early 2000s—graphs that mapped countries with per capita income or per capita GDP on one axis and per capita consumption of product categories on the other. The size of the potential market was thus calculated and it was believed that the gap between the current consumption and this theoretical potential consumption would inevitably be filled in a matter of time. Evidence that MNCs thought the same way were found in the frequency with which CEO heads rolled, the incurring of prolonged financial losses in trying to ‘educate’ the consumer while despairing about how ‘difficult’ and ‘un-evolved’ the Indian consumer was, and discussions on when they would be ‘ready’ to qualify as global consumers.

  Indian consumers surprised Kellogg’s by not giving up their traditional breakfasts and embracing the nutritious, healthy, convenient breakfast cereal. They said that their idli and their paratha were as nutritious and that the ‘cost per stomachful’ for a family of four was better. They surprised cola companies by not consuming anywhere near as much as the calculation, based on equivalence charts of per capita income. They guzzled bottled water instead and made cola companies market the same. They did not abandon their nearby ‘mom and pop’ shop (less pejoratively called the kirana) and race to the nearest supermarket with its air-conditioning and neatly labelled aisles with modern tellers and transparent pricing. They treated the supermarkets as one more place in their repertoire of shops. The young did not make a beeline for famous American brands of jeans and sports shoes as consumers in other markets had. They patronized the knock-offs available on the pavements and did not see value in the premium that global brands demanded. They did not wolf down enough McDonald’s burgers and pizzas and KFC chicken. Instead, they forced them to change their menus. And while they didn’t consume what they ‘should’ have, based on their levels of per capita income, they consumed more than anyone ever thought they would of cell phones, talk time, value-added services and everything digital. They disappointed and confused Western multinational suppliers. But it wasn’t nationalism that drove their behaviour. They fed themselves on a staple diet of Chinese goods even while decrying their quality initially (a lovely cartoon floating in cyberspace says it all—it shows a woman crying at a failed suicide attempt because the ceiling fan that she was planning to hang herself from gave way and tumbled to the floor, and the wooden stool she was standing on cracked even before she could put the noose around her neck. The caption said ‘Made in China’). Consumer India patronized the Koreans in a big way, making Samsung and LG market leaders in home appliances and cell phones, and giving Hyundai cars a big boost.

  Indian consumers proved to be capricious and wilful when product trends were analysed—the patterns shifted constantly as in a kaleidoscope with every shake of time. Sometimes the lower priced-lower quality product segments were growing, and just six months later, the trend would be reversed. Sometimes it was consumer durables that commanded a large share of the increase in incomes and sometimes the raise got spent on travel and holidays. The average age of the homeowner fell drastically and as loans needed to get repaid, other categories took a back seat. Entertainment and electronics pushed shampoos and toothpastes down the ladder of desire. And there is always a mother of all battles across product categories for the share of the wallet. A hoarding during Diwali underscored it—‘Buy electronics not sweets this Diwali, sweets make you fat,’ it said.

  But there was always a ‘value logic’ to their apparently whimsical behaviour.

  The Key Characteristics of Consumer India

  Demand Structure: The Indian consumer market still is, and will remain for a long time to come, a collectively large market made up of lots and lots of people (consumers) who earn and spend a little bit each, and are geographically scattered and diverse. This is seen as hellish business economics but perfect for the new sharing economy made possible by Internet and e-commerce.

  Value Extractors: Indian consumers have proved to be better at jugaad innovation over these last two decades than the companies that serve them. (They invented the ‘missed call’; they figured out that dual SIM phones can provide the double benefit of one slot being used to avail of the best prepaid deals from whichever telco is offering it, while the other is the number that never changes and only receives free incoming calls. They learnt to cut the glucometer strip into three, to be used three times instead of once, as prescribed.) Consumer India has proved to be a shrewd extractor of value wherever it may lie. It must not be dismissed, as it often is, as ‘value conscious’—a euphemism for ‘cheap’ and ‘doesn’t appreciate benefits’.

  An interesting range of low price-average quality-good design options now available for the first time has made Indian consumers far more experimental and readier to buy on impulse, use till bored, throw away when finished, or give away so that they can buy more. We used to joke earlier that the only thing Indians voluntarily threw out were the British. Otherwise everything was for keeps—to be hung on to till they can no longer be used, refilled or refurbished. But that has changed today—almost. More expensive items like consumer durables, cell phones and small electronics have a good trade-in mechanism. Dealers and Indian consumers realize that not throwing away the packaging in which cell phones come will enable them to get higher trade—in prices! The bulk of Indian consumers believe that their unorganized, pavement or hypermarket (fewer in number) shopping is more amazing and attractive than the large-format modern retail options. Young people always tell us that variety and frequent refreshing of their wardrobe are more important to them than big-brand labels and over-engineered quality clothing: street fashion in India makes sure that there is not much of a design gap between the two. The modest-income mass-market consumer used to rely on low-end brands from big companies for reassurance of quality and on brand knock-offs for status signalling; now the retailer provides the quality assurance and status signalling comes more from having the latest design than from the brand label.

  Aspirational: T
he term ‘aspirational’ has been used so often to describe the Indian consumer that it merits some more discussion. Marketers just characterize it as normal human greed for a better life when people want everything they see others having openly or see advertised on television. But somehow this theory of envy-driven consumption doesn’t stack up against the facts. Inequality of possessions is not such a big heartburn that drives Indian society. Everyone accepts it as a fact of life.

  Aspiration is not an all-out desire for more and more. The Indian consumer has dreams and plans which are concrete in nature and steadily executes against them as and when they are financially able. Impulsiveness is not a part of their DNA except for small, affordable indulgences. The overwhelming popularity we have seen over the years of prepaid SIM cards, car and home loans with steady EMIs, systematic investment of small and steady monthly amounts (aptly called ‘sip’) in equity mutual funds are all testimony to this. This does not mean that he or she lives a thoroughly pre-planned life financially—far from it. Financial mis-optimism, that darker cousin of consumer confidence, is rampant. Ask them how long they can survive on just their savings, without any income, and the number turns out to be far more than it should be; however, prudence is the hallmark of the Indian consumer’s aspiration. Buying gold gives them the notion of gaining financial security and saving for the daughter’s marriage, though its returns are often unclear.