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Business Commentary/Dilip Thakore

Consumer Nirvana! The buyer is king, finally

For the hitherto complacent fat cats of Indian industry revelling in a sellers' markets, the swirling gusts of economic liberalisation and deregulation are ill-winds. But for the first time in over five-long decades, the much-neglected Indian consumer is beginning to get attention, respect -- and perhaps most important, a meaningful choice -- in the marketplace.

On January 5, an event of great historical importance in the economic history of this nation occurred. Daewoo Motors India, a subsidiary of the South Korea-based Daewoo chaebol (conglomerate), announced an unprecedented 15-21 per cent reduction in the prices of its Cielo model among the midsegment motor cars. With this new year gift to consumers, the company declared the first price war in the history of India's automobile industry.

As a consequence, the Cielo GE model is now Rs 45,351 less than the Maruti Esteem VX, Rs 156,000 less than the Ford Escort LX, and a whopping Rs 262,000 than the Opel Astra. By any yardstick, the price cuts decreed by the Daewoo India management are substantial.

Though the Daewoo Motor price tag slashes are the first in the history of India's automobile industry, they follow the similar no-quarter-given price wars in the consumer durable industry. By virtue of the amazing price discounts it has sustained for almost two years, Baron International, which manufactures the Akai brand of colour television sets, has emerged from behind as a strong contender for the largest share of the national market for TV sets.

Likewise, sharp cuts and slashes have driven down prices of refrigerators, washing machines, microwave ovens, computers and cellular phone to rock bottom. For the first time in the economic history of post-Independence India, hitherto textbook concepts such as technology innovation, economies of scale, and real marketplace competition have coalesced to give the Indian consumer a meaningful choice and competitive prices.

Simultaneously, banks and financial institutions have become more customer-oriented and have begun to provide a slew of facilitating products and services to consumers. Though public memory tends to be very short, it is important to remember that charge and credit cards, ATM services, personal loans against securities and assets are facilities of very recent origin. Likewise hire purchase and lease purchase facilities are financial 'products' which were way beyond the reach of even affluent Indians until the late 80s.

It is a matter of utmost significance to acknowledge that these consumer-friendly developments are the consequence of economic liberalisation and deregulation. But for the abolition of industrial licensing in 1991, the number of manufacturers of consumer durable would have remained small, encouraging cartelisation and price fixing to the detriment of the consumer. Likewise, but for liberalisation in the banking sector, foreign banks would not have been able to expand their branch networks of introduce credit cards and ATM culture which has revolutionised the lifestyle of the Indian consumer -- or least the middle class Indian consumer.

Such acknowledgment of benefits to the consumer of the economic reforms programme is important. Because battered for the first time by the chill winds of competition, a growing number of leaders of Indian industry are crying for a halt-and perhaps even a reversal -- of the economic reforms programme. And most political parties, especially the BJP, which is the front-runner in the coming general elections, are lending a sympathetic ear.

But while putting the reforms programme on the backburner may be good for Indian industry, it won't be good for the Indian consumer who is beginning to access the good things of life. Indeed, instead of halting or reversing the reforms process, it needs to be accelerated because though prices of some goods and services have fallen, they are still disproportionate to the purchasing power of the general population.

Moreover, consumer durables apart, most goods and services produced by Indian industry have remained untouched by the reforms process. As a consequence, protected by high tariffs and outright import bans, they remain shoddy and overpriced. Therefore, the reforms programme with an emphasis upon lowering custom duties and encouragement of foreign direct investment needs to be accelerated in the interests of the much-neglected Indian consumer.

The usual argument advanced against the lowering of custom duties and encouragement of foreign investment particularly in the consumer goods industries, is that unemployment may increase and indigenous brands might be wiped out. But available evidence indicates that homegrown Indian brands are not as vulnerable as projectionists fear. And as communist China which received over $40 billion (compared to India's $5 billion) by way of FDI in 1997 has proved, foreign investment reduces rather than creates unemployment.

The only valid criticism one can make of the economic reforms programme is that its benefits have not percolated down to the majority of consumers at the base of the social pyramid. This will happen when massive doses of investment flow into the infrastructure industries. When the supply of electricity, road networks, transport and telecom facilities improves, farmers, traders and small-scale businessmen will be able to access markets across the country more easily. Infrastructure development creates national markets and eliminates regional price distortions (particularly of agriculture sector produce) while simultaneously affording a better deal for the producer.

One of the unsavoury characteristics of post-Independence India's economic development model has been a Soviet-style indifference to the interests of the consumer. While the national interest undoubtedly demands that industry be encouraged and developed, the interests of industry need to be balanced by the interests of consumers who constitute the overwhelming majority of the nation's population. And one of the major arguments for persisting with the economic reforms programme is that for the first time in five decades, the Indian consumer is being given a modicum of respect and consideration.

Dilip Thakore