She exhorted “corporate India” to serve this emerging market for the “structural durability of growth”.
The assessment that consumption growth will come from a large mass of people moving with a small acceleration in their income growth is justified. As this column has often pointed out, force is mass × acceleration, and a big “M” with a little “a” is just as powerful as the reverse.
However, the assumption that this market is unserved and awaiting Corporate India, a shorthand for large established companies, is not true. Small and regional businesses, across sectors, are deeply entrenched here; they are the less visible “Lilliput businesses” that have given traditional large incumbents, the more visible Corporate India, a run for their money.
The mental models used for policymaking need to be revisited and updated. In the old days, there was the organised sector, the mainstay of acceptable quality supply, and the equally large unorganised sector, dismissed as cheap, substandard supply that consumers would reject as soon as they could afford better.
In the last 20 years, and with the advent of the digital age, the entry barriers to distribution and access to all manner of knowhow and talent that businesses needed (but sadly not capital) came crashing down. The small unorganised sector, now goods and services tax-purified, evolved and, in many cases, started offering superior consumer-perceived value (benefit minus cost) compared to larger corporations. A look at Amazon’s supply base and a walk down any small-town or semi-urban market will confirm this, as do public statements from fast-moving consumer goods and apparel companies’ chief executive officers calling out severe competition from small and regional players. Further, for almost two decades, “make for India” has been synonymous with “made in China”.
India’s small suppliers and China’s influx have proved that mass markets, like time and tide, wait for no man. Multi-national companies offer a cautionary tale. They consistently followed a strategy of “let’s serve the top of the income pyramid and wait for the rest to attain income levels worthy of being served” and found that, far from being eagerly embraced when consumer incomes grew, they had to fight to get into the consideration set.
So the next phase of consumption is already being served well by agile, innovative small businesses and opportunistic imports. A “jugaad broom”, which bends in the middle the way a Dyson cleaning attachment does, a Paithani look-alike sari at ₹500, perhaps made in China, children’s schoolbags, shoes that a small-shop delivery boy wears, blankets and polyester warm wear, cheap smartphones and an array of packaged food are examples of the ubiquitous range of needs small suppliers serve for modest-income consumers across the country.
Why is corporate India reluctant to serve an obvious source of consumption growth? According to government data, in the past decade, increases in discretionary income of this mass consumer base have been slow, and in some sectors of employment almost stagnant. Meanwhile, the high-income, high-value “class” market has grown its income and consumption faster, is far from saturated, very receptive to good Indian brands, and still under-served. Its fragmenting family structure is also fuelling consumption as the number of households per thousand population increases.
The strategic choice many in corporate India have made is to invest in this beautiful swan and not the ugly duckling, and wait for it to transform. Is that shortsighted? Yes, if the time horizon is over 10 years and no, if it is QSQT (quarter se quarter tak), or if the CEO’s term is shorter and bonus tied to the stock price. Unlike the days of Saral soap and Lehar Pepsi, the government can only persuade, not force them.
The present mental model of supply that policymakers have is fragmented into MSME ( micro, small and medium enterprises), startups, “industry” (read traditional corporations), unincorporated informal enterprises, and so on. This makes for a fragmented understanding of consumption and supply, and causes fragmented policy actions. A segment of small businesses sits at the confluence of consumption, mass markets and employment. Yet the notion exists of big “industry” being the propeller of all forward movement, while those already there are not offered the same facilitation.
Despite numerous committees discussing their problems, their biggest impediment — access to capital — is yet to be addressed. Policymakers need to holistically see India’s multi-tiered base of consumers, suppliers and employers, and design a multi-tiered, clearly-segmented policy. For a start, the first M of MSME should be detached and the SME further segmented.
The same argument goes for the expectation that large corporations sharing profits more fairly will fuel wage growth in the country. They employ a tiny fraction of the workforce and will continue to do so, and wages of the formal sectors or government salaries, unlike those under the erstwhile Mgnrega, have no signalling value.
It is time to reimagine the theories of economic development given the age we live in and India’s peculiarities (or precociousness, to borrow a phrase from the book A Sixth of Humanity).
The author is a business advisor in the area of customer-based business strategy
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