March 22: At a time when daily news reports bewail the lack of growth in consumer demand, the television, music system, computer and even car markets are abuzz with activity. Corporates are falling over themselves dreaming up innovative schemes for pushing sales, and consumers are having a whale of a time cashing in on the bonanza. This is one market which illustrates vividly the virtues of competition, and how consumers benefit from the price wars which result. But a closer look reveals less optimistic features.The consumer durable boom a couple of years ago was based on the assumption of a largely mythical 200 million strong middle class, all lusting after the consumerist Nirvana promised in countless advertisements. Pent-up demand was responsible for a all-too-brief surge in consumer demand, but it was not long before the saturation of that demand brought speedy disillusionment. Corporates, especially foreign corporates new to India, realised that the "middle-class" in India is vastly different fromthat in the West.
Uncomfortable questions started being raised about the wisdom of an economic growth strategy on so narrow a consumer base. The problem was sought to be postponed by increasing personal credit. Corporates, finance firms and banks vied with each other to extend credit to all sorts of customers. This was in line with trends the world over, where a massive expansion in levels of personal indebtedness had helped expand markets. The trouble was that no personal credit histories are available in this country, and the concept of personal credit rating does not exist. Corporates were doomed to reap a bitter harvest -- one telling example being the thousands of repossessed cars taking up valuable city space.
It was at this point that the principle of the trade-in was adopted on a mass scale in the Indian market. It was recognised that the average Indian consumer clearly was price-sensitive to an unprecedented extent. And yet, companies shied away from either slashing prices to a level at whichthe number of first time customers would increase sharply or extending their marketing network to search for these customers. Instead, corporates are concentrating on the same set of upper-class customers who already own the durables. The trade-in schemes announced by TV companies, for example, benefit only those who already own a TV set. These schemes also do not expand the market, as new customers are not targeted. Clearly, schemes of this sort are a short-term expedient dictated more by desperation than by strategy. All that schemes of this sort illustrate is that the skewed distribution of income makes a consumer-led growth strategy extraordinarily difficult.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
