From Indias largest newsroom, I'm Arun George and this is the
Times of India podcast. So we start this episode with
some basic economics. When we talk about the Indian
economy, the number that's always touted is the gross
domestic product, or GDP. But a very integral part of GDP
is consumption. We asked our guest on today's
episode. Why is that?
One of the ways of looking at GDP is a combination of how much
we spend as householders, the total people of India, how much
we spend, how much the government spends and how much
money is invested by companies and people who invest in in in
India. So the how much we spend drives
our economy because when we spend then people invest behind
what we spend. So how much we spend is 1.
Component of the total economy to give you a number is between
50 and 60%. So between 50 and 60% of Indias
total economy is contributed to by household consumption or how
much all of us consume. So it is a huge chunk.
It is much smaller for a country like China.
So we always say that we are a consumption driven economy,
which basically means that if we start spending less and less and
less as people then our GDP doesn't grow as handsomely.
That's Rama Bijapurkar, who is one of India's most respected
voices on consumer behavior. She's a researcher, an
independent director on companies boards and an author
of multiple books that seek to decode consumer behavior in
India. Her latest book is titled
Lilliputland, How Small is Driving India's Mega Consumption
Story that has been published by Penguin Random House.
The book is an insight into the Indian consumer and seeks to
explain what many businesses continue to get wrong about the
Indian consumer. In today's episode, Rama
Bijapurkar is in conversation with my colleague Jayarat Singh
and me about the book and her own insights into the people
that power India's economy. She explains what companies have
been doing wrong since the pandemic and what worries her
about the state of India's economy.
We also discussed the brands that have most impressed her for
their understanding of the Indian consumer and how our
cities need to change if we are to see sustainable growth.
We started by asking her why, She says the Indian consumer
market is one of the least understood.
In your book Lilliput Land, you say that India is one of the
least understood consumer markets.
Why would you say that? Firstly, we're just this hydra
headed monster. We are just so many parts to us
and we're so many Indias, so everything you say, the opposite
is true. There is rich India.
There is poor India. There is IT India which catches
a cold when America sneezes. There is agricultural India that
starts feeling unwell when there are no rains.
So they're just different forces at work.
We all know about the number of languages, the number of
customs. We don't even have a single New
Year's Day. Then again, I think we're not so
understood because we're full of contradictions.
I mean, people say that oh, as you get richer, foreigners have
often asked me, Surely you will start having choosing your own
spouses and not having arranged marriages.
But now I find that parents are still looking, except they're
looking online. Arranged marriages have now
become engineered marriages. And as is often said, the dating
market may have been decontrolled, but the meeting
market is still very controlled. Another example is that the
lower income you are, the more you love technology.
Why? Because people tell us that the
ATM doesn't care whether you withdraw ₹2 or ₹200, wear
pajamas or wear jeans. Lower income people love talking
to IVR machines because it is status blind in terms of the
service it offers. In America, the roads came
first, The roads became the central nervous system.
In India, the mobile phones came first.
That became our central nervous system.
And hopefully the roads are coming very, very quickly after
we process value differently. When we look at something and
say pesa vasool, kinnei vasool, it's not necessarily the best
branded handbag. So there are many ways in which
we don't follow the norms that have been set elsewhere in the
world that tends to confuse people.
What for you are the biggest misconceptions about India's
rural consumer? Because there is a certain idea
we have about the rural consumer, right?
I think we tend to look at rural India sometimes the same way we
complain that MNCS of foreigners think about us.
And that means that we think it's stuck in the dark ages.
It's poor, you know, It doesn't know what's happening in the
world. But in actual fact there are a
few things that are happening with rural I1 is that half of
Indias rich live in rural India and most of Indias poor live in
rural India. So when we say, oh, rural
markets are growing, it could just be that the rich people in
the rural markets are actually consuming more and they are
there out of choice. So we also assume that they're
unevolved and unexposed. But actually aspiration is the
same for both. They listen to the same TV
programs you have. They're also on OTT as much as
the rest of us are, maybe a different language, OTT.
There is exposure, there is. So the gap between urban and
rural in terms of mindset is actually melting.
So when you have Rd. connectivity, YouTube
connectivity, it blurs differences.
People often tell me that when they go out looking for offering
skills in rural areas, beauty parlour skills are actually in
demand because that's where the demand actually lies.
So the the big misconception is that the new quote UN quote
villager is the old villager. What do you propose for
companies to do with this understanding that you know the
rich are not concentrated in urban spaces?
I expect them to stop saying that once I finish the top 100
cities in India distribution, then maybe three years later I
will go to smaller towns and another five years later I will
go to rural. The point I make in my book also
is that the rich are everywhere in every little pocket.
And now with connectivity and airports and hopefully another 5
Indigos, we actually will find that people are opting to stay
for better quality of life in smaller towns.
And if Internet connectivity improves everywhere more
dramatically, then I think we will see more rich people
everywhere. So companies should look at all
of India as their oyster instead of having some caste system of
where they will go. In terms of the sort of rural
matching, urban in terms of consumption, would you, I mean
and I ask this because there is a lot of statements about the
North and South of India being very different.
Would you say that that's the case, that the South is far
above the north in that sense? And what does that then mean?
So OK, let's make the proposition that says that
desires are similar, exposure levels are similar, we watch the
same things, want the same things.
To the extent that what I want in a high rise apartment may not
be what you want in a small cottage in a village, but by and
large we really want we're at the same level of desire.
What's separating us is the income levels.
Some of us make far more money in the rich.
In fact, even the recent government data released has
shown that the top 5% of urban India and the bottom 10% of
rural India are exceptionally high income earners and
exceptionally low income earners or expenditure as it tracks.
So everybody else in the middle is sort of you.
You'll find the same levels of expenditure everywhere.
So if you take income as the only differentiator, it is a
fact that southern states have higher incomes per capita as
compared to a state like UP. So I think it's what's happening
in India actually is that after liberalization, we thought we'd
homogenize and become one nice happy, similar thing.
But actually if you notice, our politics has gone regional, our
language has gone even more regional.
The Internet has also gone more regional.
So we're actually celebrating our differences much, much more
and I think different states are at different levels.
So it just so happens that the larger states which are in the
north are actually poorer states but catching up.
So yes, the South is the most sophisticated group of
consumers. The North is less money and
still growing. The West and the South are
supposed to be the good market. The East has much fewer places.
If we open up the Northeast completely, a lot of people are
beginning to tend to the Northeast because the
Westernization levels are higher, the aspirations are
higher. So yes, India is completely
fragmented, fragmenting even further or as markets go.
In your book you write about, you know the several successful
begin small businesses that have defied the norms of developed
markets and come up with these products that are affordable and
allowed consumption to take off. I know you've listed multiple of
them, but for you, which are the best case examples of these?
So for me what is interesting more than success or failure is
who has demonstrated what can be done which makes other people
pick it up, who creates the wave.
So for me the Holy Trinity is what I call the three NS Nirma,
Nokia Nano. So Nirma many, many years ago
actually showed one what a low cost model can actually be.
And I remember spending a year and a half as a consultant in
Hindustan Lever just studying that model because it was new
and we didn't understand it and it went on to show us what is
appropriate quality and appropriate price that works for
large masses of the Indian market.
What I loved about Nokia is that it actually showed us that a low
price model is not clunky. Low in fashion, Sasta, Sundar,
Tikau as compared to a high price model where you get the
goodies. She gave us the goodies on the
low price model, they gave you a camera, they gave you a sleek
looking instrument. And after that I remember even
doing a study on 2 Wheelers and I saw the Nokia effect where
people did not understand why just because you're a low price
2 Wheeler you will end up having a clunky design.
I mean design elements shouldn't vary.
And then there was Nano. And while Nano was not a
commercial success, afterwards came the terms frugal
engineering, Gandhian engineering.
So all these I think were terms that actually showed you what
kind of innovation went into making a small car.
So cheaper telecom is definitely NGO.
Definitely that led the way is a Made for India solution.
UPI, which essentially says that we are agnostic to which
instrument you use, which platform you use.
We're not a closed loop, I think is again Made for India Minute.
You simplify it in the minute, you take away all costs from it.
Of course no one's making money on it at the moment, but I think
it's still an example. Share chat where the founder I
was reading somewhere said there are lots of people who don't
feel comfortable doing Facebook and don't feel comfortable doing
those. And we actually teach people
what is tag, what is post, how do you do it and do it in your
regional languages? Or for example the original Made
for India was the Shampoo Sachet and now Uber is the
sachetization of a car and if you're renting dresses and high,
high-priced dresses and so on is the sachetization of the dress.
And I think China has also showed us what Make for India
is, you know those little dears that come the very, very low
priced synthetic sarees that everybody's using.
So that's that's quite a quite a lot.
You also present the I mean, I'm bringing this also because you
talked about the motorcycles, but you know how richer our
rural households buy low cost motorcycles and poorer
households buy more expensive motorcycles And you cite that to
show that we need to understand our consumers better.
What for you? Have firms got wrong about this
sort of cheap but utilitarian preference that the Indian
consumer is said to have? I think I was telling the story
of how there is an overlap between 2 Wheelers and cars in
the same household, right. So we believe there is a car
owning household and there is a motorcycle owning household.
But all Indian households balance things.
You know, if it's as simple as detergent, then it is that which
you will use for very expensive garments and that which you will
use for cheap stuff, right. So you basically are balancing
things. So when a household balances out
a car and a two Wheeler and it essentially says that my status
needs are taken care of by the car when I'm taking the family
out, but when I'm going to office I will take a two
Wheeler. Now on the other hand, if you
take someone who is middle to lower income, that person is
essentially saying that I have only one vehicle.
I want a vehicle that gives me the maximum possible status
given the budget that I actually have.
And so I remember asking one of them, why are you paying for a
newer model in black? And he said so that I don't have
to change it for another four years and I want to be somewhere
top of the line. So people are balancing all the
time. And it is how consumers think
that. I think companies don't think
about often. So for example, we're used to
saying, oh, this segment is growing, that segment is not,
but that segment is actually a product segment.
It's not a consumer segment. So I use that to make a case for
saying can we look at who's buying and not just what is
being sold? And you delve into this whole
aspect of aspiration, right? That while there is confidence
in what you have, in how much to make of it, each rung is trying
to aspire for a better, better life.
Yeah, I call it the stretch for more rather than settle for
less, which is also a little bit of an answer to previous
question. So you stretch for more.
So if you look at how many people of the lower income
actually take their children out of government schools and spend
all the money and put their children in a private school
because they say Bhabhi government school, English Padna
hai, computers Padna hai. So they're willing to stretch
that much more. And then if you look at people
of the higher social class, they want their children to go to an
Ivy League fully paid Harvard MBA which cost the earth.
So we're all stretching similarly in homes.
I mean, I've been reading how after COVID at the higher end
with work from home, people are actually moving to better and
better homes. So we're all the time striving
for a + 1 + 1 + 1. So it's a plus one mentality,
which is a good thing if you can afford it.
One of the things you point out about rural and urban India is
the fact that the quality of jobs and income indicate that
there's no evidence that urbanization is boosting indias
consumption growth story. Wouldn't that be a bad sign,
given urbanization is seen as the sort of path to India's
growth story itself in many ways?
OK, the theory of urbanization is that you move people into
better homes, with better quality of life, with better
amenities and better quality of jobs.
Now, in a lot of our cities, even if you look at the previous
census, it classified 25% of urban dwellings as slums.
Other than the some definitional problems of what is urban and
what is rural, which need to be sorted out, our urbanization
like the genuine middle class. It's not like genuinely,
genuinely urban, right? You don't have better
facilities, you don't live better.
You don't necessarily have better quality jobs, but you
have higher paying jobs. The security guards that you see
outside, you know, they wear their uniform perch apps and the
heat, but they have absolutely no security, no formality, their
temp workers. So if this is what a lot of
urban India is, then urbanization may be enabling you
to earn more for that unit of effort, but it's not enabling
you to live better and want all the things that living better
actually qualifies you to do. And so that is my point.
Now, I think slowly, slowly, there should be better public
goods because right now urban does not mean better public
goods. It means worse, but slowly,
slowly. I hope that by the time our
metros get together, which widens people's footprint
cheaper if we can actually get affordable housing to take off
where people can actually live better, if you can get water and
toilets to people's houses. And you know, now we're already
beginning to experiment with smart cities.
So by the time the whole pieces come together, maybe by that
time we would in theory, be urban.
We'll move from urban to genuinely urban.
But everything in India happens. Halal.
It doesn't happen. Jhatka.
It's a large mass moving with a small acceleration, which is
fine, That's us. We're back in conversation with
Rama Bijapurkar about the Indian consumer and economy.
Like Rama explained earlier, the Indian consumer market is
misunderstood due to its diversity and the fact that
Indian society doesn't fit many traditional definitions.
We ask Rama about why she feels income levels are so
misunderstood in India and why we really need to create a
genuine middle class. This is the thing that you've
devoted a whole chapter to in your book, which is about income
levels this year, given it's an election year, there are a lot
of numbers being thrown around about India's income levels.
Could you explain where you put Indians when it comes to this
income level? Income really bugs me because I
think we have. In fact, I also have a joke in
the book that nobody understood and I'm sure your generation
will absolutely not understand it.
But it's about a man who is asked in how old he is and he
says do you want an answer in age or in yen?
And so the the interviewer says how can you measure age in yen?
And he says I'm actually 65 years old, but I yen to be 25.
And somebody asked me, is that a currency conversion joke?
And I said no, actually yen means it's old English for what
do you desire? So I think we like to believe
that we're richer than we are. So the famous saying amongst
income measurement geeks like me is that India is not as rich as
we think it is and it's not as poor as we think it is.
So if you say that I am the 4th or the 5th largest economy in
the world, on track to becoming the third largest economy in the
world, in the same breath, we don't add that in terms of per
capita income, which is how rich is every single Indian.
We are below the rank of 100. So frankly we are and I keep
saying let's embrace it. We are a large economy of lots
and lots of very modest income people number 1234 are actually
large economies of a few people who actually earn a lot and and
and that is really why I'm trying very hard to get people
to engage with income. So by my estimations and also
the new government data saying pretty much the same, the
richest 10% of India will probably earn about 2,00,000 a
month and the poorest 20% actually earn less than they
spend, which is about 1 to 2,00,000 in a month.
And everybody in the middle can be 4710 lakhs a month.
But you know, 4,00,000, three lakhs 4,00,000 is about the
average of where you'll get 2. So yes, we have a few people who
will make it to the world's richest list.
We also have a lot of people who will make it to below 100 in the
overall ranking. And so to say, let's wait for
India to get richer, I make the point repeatedly that the
customer is ready. Even if you're poor, you have
needs, even if you have modest income.
You want your houses painted, you want your gadgets.
You know, even if you're a poor farmer, you want to sweat your
mind and not your bodies. So we have to make things at the
appropriate price and the appropriate performance rather
than keep waiting for income to go up so we're not as rich as we
would like to believe we are. And that's the core truth.
You also argue for the creation of a genuine middle class, which
you say is still not there to the extent that we need it to
be. Can you explain how you believe
that can happen? And also what happens if we fail
to create this sort of genuine middle class?
This is something else that I've been going to war with a lot
that we, a lot of pundits describe middle classes between
income X and income Y. But but actually a middle class
is important. That's why sociologists say we
should study it, because it drives the economy, primarily
because they have surplus income to invest back in their own
well-being and their children's well-being and making the next
generation better. They have predictable, stable
income. So it's not like something
happened and I've lost all my income, or I have a four 5%
surplus income and the price of vegetables went up and now
suddenly I've fallen off the ladder.
So a genuine middle class is important because it gives
stability, because it has resilience, because it invests
in itself, and because it makes the next generation better than
where the present generation is. And that then powers the
country, powers society and powers the economy.
That's the theory of the middle class.
Now there are many views on this.
There are books written on whether this can only happen
through services or through manufacturing.
Essentially, I think Indias Achilles heel is that we have to
give enough people predictable and higher skilled jobs for them
to have higher skilled jobs you have to skill them.
The reason we talk about formal jobs being the way to create a
genuine middle class. What is a formal job?
A formal job. And I have a colleague, You are
Henrik Wong, who works a lot on this.
A formal job is not a company with the GST number.
The reason we want formal jobs is because a this predictability
B employers will invest in improving you.
Your tools will be better and you will have enough of a
network of people so that you can work together as a team and
start getting more productive. One set of theories is saying
that you have to have manufacturing.
We don't have that much manufacturing, if I understand
it right. The new book by Raghuram Rajan,
He talks about how we shouldn't be emulating anybody else, but
we should use services. Right now.
To me, a Swiggy boy is not that kind of creating a middle class,
right? Because it has all the problems
of agricultural labour as well, you know.
It's uncertain. You're an own account worker.
Nobody's investing in even giving you a motorcycle or in
helping you do your job better. And out of Swiggy boys, we will
not see another five Swiggy's coming out.
But what happens if we don't get that?
As in because like you're saying that since our focus and our
sort of celebration seems to be the creation of more temporary
jobs, more gig jobs and things, that is informalization of
labour, What happens if we don't do what you're saying then?
If we don't do it, then we have volatility.
We have volatility and uncertainty.
We only hope that by the law of large numbers, if something is
burning in one part of the country and it is doing badly,
agriculture does well. But the trouble is you can't
predict it and you can't plan for it.
So then I think we should be willing for volatility.
Ramen just to check. Also then, how much of A worry
is this sort of continuation of this K shaped recovery and
greater inequality that we're seeing, especially since the
pandemic strap? Yes, after COVID.
And I think if we are honest about the reasons why, the
reasons are fairly clear. Everybody who had a skill, who
could work from home and still earn a living did very well.
In fact, we never spent as much money and you know, things were
good. If you are someone who has to go
outdoors, if you're casual labor, which is a shocking lot
of people, or if you're a petty trader or if you're a shopkeeper
and you were not allowed to do that.
So therefore that the K shape is.
You're right that some people have done very well.
Some people have not many companies as going back to our
earlier conversation, that prefer to serve the top end of
the market and not serve people with less money.
I think it's delightful for them.
New is actually doing very well. You don't have to go through the
land rank and file trying to comb for the extra business.
You know the creamilia is getting creamier.
So as long as I target that, I'm getting the cream.
A lot of them are then saying I will have this flight to safety.
I will only serve those except that when the market turns, I
think you're gonna miss a huge, big opportunity.
The reason from a policy or even a society standpoint, that a key
bothers me personally is not so much with the inequality,
because we've always been unequal, and more unequal as
compared to less unequal as long as the lower end continues to
grow. And that's where our modern
welfare state has actually saved us.
The amount of money we've put out on food has actually saved
us. But the tragedy then is that you
are not using the full potential of the country also.
The tragedy is that while you are talking about 3.8 tending to
5 trillion economy, you're only using 50% of it and targeting
that. And so the rest is not
happening. Actually, I think that it's now
time to stop looking at where we are in world rankings, because
we will always be 123 on everything, but to look at how
far we are from our own potential of our people and how
we can unleash everybody's potential, and to that extent,
the K shape per SE doesn't worry me, but people's flights to the
top end of the K worries me even more.
You also talk about the importance of investment to
boost consumption, and that seems to be something that the
private sector's presently holding back on their multiple
reports which say that the government is spending but
private sector is not. How does that change?
What is it that the private sector may be waiting for at
this point? No, I have to be careful here
otherwise I will lose all my friends.
But the the I think the private sector.
I have often written and said the Government of India is not
your marketing director. If you're investing beyond
consumption and you are saying that oh, if the the GDP is like
the tide, when the tide comes up it has to buoy me up and when it
goes down, I have to sit and wait for the tide to turn.
I think that is really lazy business.
For example, how often do you hear the word market share and
all the equity market reports that we hear.
You know, even if the overall market hasn't grown so much for
whatever reason, you can grow your market share.
So I also think that companies, if you're sitting in the world's
most exciting market with the largest number of people who are
dying to consume consumption is our new God and we've added it
to the pantheon, right. And it's morally purified and we
all want to consume. So if you're not able to serve
and the youngest market in the world, so we like these
buzzwords, but we don't want to put faith behind it.
And then we say we'll go somewhere else and earn in
dollars. We've already done that and come
back as well. So right now, I think India Inc
is happy to invest behind the the rich parts of the market,
but is not happy to invest in the entire market.
And multinationals also don't want the entire market.
So we'll have to wait and see whether that will change.
Otherwise, I am saying that it's not that nobody's serving the
core. There are lots of the modest
income. There are lots and lots of small
businesses that are doing quite well.
They're agile, they're nimble, they're small brands.
There are 10 times the number of FMCG small brands and there are
big company brands. So then it's game, set and match
to the small companies and the world divides even further.
The title of your book comes from this sort of small
suppliers who manufacture and sell to the regional markets.
You point this out as well, but why don't we have many of them
who become national players? Why?
Why do they stay restricted to these very niche markets and
regions? Partly it's the battle for
dreams, because you're making, if you're making good money,
where you are for you and your family.
But on the other hand, you know scaling is not so easy, right?
You need access to capital, You need access to skills.
You need access. You need staying power because
there is a period of time when you go into the ditch, when you
start scaling, when you have to start putting out money.
Imagine you're a retailer who has to do, who has to go to
another 10 regions and those regions are completely unknown
to you. There is a certain learning
curve. So it's hard.
Now if you have to do this when you're small and then banks will
not lend to you, you don't have patient capital and you don't
know how to do these things, then I think it is daunting.
So right now there is it's very hard for them to actually scale
but we hope overtime that out of if you can improve the flow of
funds to them and if there is a larger pool of skilled people
available that more of them will break out and start becoming
bigger. But on the other hand India has
always been a market where scale is not a big edifice but it's a
million fireflies. So the trucking market people
said, oh, these huge, big humongous trucks are going to
come in and wipe out everybody else.
But actually we saw the aggregation of the one trucker,
2 trucker, 4 trucker hub and scope behind a big trucker.
So that is maybe our natural rhythm.
And so maybe we will scale from the coming together of these
people onto platforms and so on. And that is also what I say in
our book. So it's not so easy.
And also I think it's the battle for dreams.
I think we want them to go value added, maybe not larger and low
value. You know, growth is a very
disaster on male Funda. You know, growth I think is much
more holistic. Today's episode was produced by
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