A lot has been said about kick-starting the rural economy to really make an impact on the sluggish industrial sector. There is a belief that the urban markets, to a large extent, are saturated and the growth thrust needs to be located in the hinterland. While this is, by and large true, a closer look at the urban consumer and the allocation of expenditure suggests that there are, perhaps, alternatives ways of cranking up the industrial sector by examining some of the fundamentals of urban living.
There is nothing surprising about the pet peeve of all housewives – soaring prices of goods and services. For some time now, marketing companies have been complaining about the recessionary trends in the market, lower consumer spends, and down-trading by consumers to cheaper brands. A fallout of this has been an overdose of consumer promotions. There is virtually no product category that is not relying on below the line expenditure for quick, short-term gains. In a market with virtual brand parity the only point of differentiation is the ‘scheme’ that provides the value addition. This is, perhaps, more true for some product categories than others.
All this, somehow, can lull one into thinking that the burden of monthly household expenditure falls on soaps, toothpaste, ‘atta’ and others in the grocery list. Not surprisingly, the housewife is looking for a respite from ever rising costs and the various ‘schemes’ are more than welcome. But is that where it really hurts? No. “It’s the bills”, the housewife moans, “electricity, transport, telephone, medical and the children’s tuition fees”. And she is not far from the truth as the following table reveals;
Price increase per annum (%)
Last 5 yrs Last 2 yrs Weightage in family budget
Agri products 4.5 4.5 27.5
(fmcg/semi durables eg,
textiles &footwear) 3.5 3.5 25.6
(electricity,fuel, transport) 14.0 20.0 17.1
Rentals 10-12 10-12 7.4
Medical services 10.0 10.0 3.1
(Source: Family budget survey, Govt. price indices-WPI)
Bingo! The highest price rise has been in the utilities or household infrastructure followed by rentals and medical services. The sharp escalation in the household infrastructure within the last couple of years is because of the removal of government subsidies to reflect real costs of these services. Almost 30% of the total household expenditure has seen as much as 10% to 20% price rise per annum for the last 5 years. In contrast, agricultural produce (vegetables, fruits, cereal, grain, and dairy) and fmcg products which make up almost 50% of the total household expenditure, have witnessed the lowest price hike of 3% to 5% per annum in the last 5 years. Ironically, these are the two areas where ‘lower spends’ and downtrading are allegedly happening.
The sharp hike in the cost of basic infrastructure and medical care is taking its toll on the consumer goods industry. These rising costs are virtually fixed expenses and while rentals and medical services are difficult to cut down on, even utilities are not easy to control. The number of electric appliances and gadgets in a household is growing. Penetration of water geysers, air conditioners, second TV sets, washing machines, refrigerators, mixis, irons and similar products is going up, thus adding to the electricity bills. And while the cost of public transport takes a heavy toll on the consumer’s purse, owning your own transport has not made matters easier with the rising cost of fuel.
The growth of the telecommunications market has seen the addition of mobile phone bills to the burden. With globalisation has come a host of consumer products that are aspirational and on the ‘must buy’ list of most consumers. Last but not the least is the heavy cost of education. It is well known that Indian parents, regardless of their socio-economic status, would never skimp on their children’s education. In fact, large numbers, are likely to spend disproportionate sums on education. This includes the heavy fee that is paid for extra classes other than those provided by the schools and the capitation fee for entry into institutes of higher education.
So why should the consumer bear an ever growing burden across a basket of services and amenities? Take rentals, why are we not able to stimulate house ownership through land and tax reforms? Public transport, water, electricity and others are all following a cost plus model given their monopolistic nature. On the other hand, look at what competition has done to mobile telephoning costs. Disinvestment is not the responsibility of the Central Government alone- every governing body from a State Government to a Municipal Corporation can accelerate the pace by introducing competition in these areas to the ultimate benefit of the consumer. Do they not realize that their vote bank is the consumer and not the employee?