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Consumption & The Role
of Retail in Economic Growth
(Based on a presentation at the CII National Retail Summit, Mumbai, November 2006)
PDF of the handout by clicking on the link at the bottom of the page.
|| Some years ago, a very lively
and friendly conversation that I was having came to a dead stop when the other
person got to know that I worked with the retail sector. |
Her attitude towards
me immediately underwent a dramatic change. From a normal human being, I suddenly
became comparable to the "lowest of the low" on the planet. I was instantly accused
of being "one of those who promote others to consume more and more, endlessly"
(obviously to their and others' detriment).
That incident seemed to typify
for me the mind-set that we in India had fallen into - "dukandari" (shopkeeping)
is bad, because it promotes ill-afforded consumption. We have reached that mind-set
due to centuries of living a poor life pre-independence and, after independence,
decades of good intent but poor practice.
Contrast that with the American
philosophy that not only is consumption 'good' and necessary for economic prosperity
- it is akin to God. In fact, from my point of view, much more to the other extreme…but
that is another story.
However, the Indian attitude is certainly a strange
contrast, since consumption, commerce, change are well-established and accepted
in the traditional Indian schools of thought. Let me offer the two following examples,
from millennia-old Indian philosophy:
- The concept of "Purushartha" that offers a balanced view to managing
life, bringing together Dharma (righteousness), Artha (wealth), Kama (sensory
pleasure) and Moksha (communion with the Infinite). The physical and worldly is
as important as ethereal and spiritual. As Arjuna is quoted in the Mahabharata:
"Without Profit or Wealth, both Virtue and (the objects of) Desire cannot be won…Do
not applaud poverty".
Clearly, there is a role for commerce and consumption-led
economic development in the overall re-development of India. And I believe retailing
as a sector has a very large role to play in this.
- The division of life into the four ashramas,
Brahmacharya (Focus on Study), Grihastha (Focus on the World, Family), Vanaprastha
(Withdrawal from the Worldly), and finally Sanyasa (Renunciation). Again, while
the approach is not prescriptive, the weightage offered to each phase of life
is equal. And grihastha, the worldly phase, is presented as the root that allows
the others to flourish.
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Retail's Role as an Economic Engine
If we consider the hierarchy
of economic development and subsequent impact, progressively we see:
In this evolution tangible (touch-feel)
values give way to intangible (imagined / perceived) values that are much greater
in magnitude. In fact, the inflexion point really comes when the transition to
modern retail happens. While the previous steps are essential for the growth of
modern retail, the reverse impact of modern retail on those very steps - manufacturing,
agriculture and urban development - is huge. At this stage, the economic development
starts spiralling through this feedback loop.
- Subsistence farming giving way to modern farming
- Cottage industry
developing into larger scale manufacturing
- Small towns and poor villages
transforming into a vibrant and balanced urban and rural Mix
retail businesses growing into modern retailing, and
- Generic merchandise
paving the path for brand developmen
Why is there such a wide and deep impact of modern retail on the other sectors?
The prime factors are mainly three, and all have an impact on agricultural supply,
manufacturing and other SME suppliers, town planning, services infrastructure,
as well as having an impact on the socio-cultural environment. |
retailers grow larger, into chains, the need for efficiency grows. Process and
system-led planning and execution become the norm. Wastages or inefficient processes
which may only be quirks in a small business, may be fatal in a larger one in
a more competitive market. Second, a related factor, is the need for consistency
across the chain since any modern retailer would wish to communicate certain core
brand messages from each and every store. Both of these factors push the need
for more structure into the supply base, whether farm or factory.
| || The third
major factor is the need for differentiation from competitors. As the market grows
and matures, competitors' offers can start looking very similar to each other.
The successful players start pushing more product development, private label growth
etc. which can help them stand out in the market. This has its own separate impact
on the supply chain in terms of upgradation of product in terms of features, quality
and benefits delivered to the consumer. || |
All this, of course, looks like the development path followed by the western
economies over the last 150-years. And from the looks of it, this seems to be
the development path being pushed by a lot of people in India, presumably aiming
for the same result.
However, let's pause for thought.
for An Indian Model
Economic growth or prosperity can be looked at
in two ways - on average how prosperous a country is (in comparison with other
countries), and what is the relative position of people within the country. Economists
measure the second factor using the Gini Coefficient, which essentially measures
the level of income inequality in a population. (A Gini Coefficient of 100% would
theoretically be completely unequal with one person holding all the income in
the country, and the lower the Gini indicates that incomes are more equal within
the country. The more overall prosperous countries (such as the Scandinavian countries)
have also more equal distribution of income within the country, while relatively
poorer countries (such as in Africa and Latin America) tend to have higher Gini
The biggest problem that I see in the current push for consumption-led
growth (retail-led growth) is that the focus is totally on the first measure (per
capita GDP, average income etc.), rather than on the second. After decades of
almost monastic self-denial, India seems now to be swinging to another extreme
- an orgy of consumption.
Let me describe what I believe the problem is.
In this focus, there is a single minded focus on earning and spending
"More" - if you want to fit in you need to acquire more, if you want to stand-out
acquire something different (more), if you do not have something you need to acquire
it (more), and if you do have something it is always good to have (what else!)
In itself is there a problem? After all, inequality is
a fact of life, and can be good because it creates ambition and brings forth creative
energy. But does that mean that more inequality must be better?
imagine the population of India to be a cylinder or a cone, we can visualise how
aspirations to a better life are pulling everyone upwards. The problem arises
when the aspirations that are raised cannot be fulfilled with the income available
- that vacuum creates stress in the society. This is not a problem for the future;
we already have ample evidence of it in our cities with the dramatically higher
rates of crime related to money and aspirational wealth / spending.
Referring back to the Gini Coefficient, economists have also defined a certain
optimal range - if incomes are too equal, then there is little incentive for self-driven
growth, but if incomes are too unequal beyond that range then social injustice
and dysfunction is more widespread.
India at the moment is actually rated
to be almost in the middle of the optimal range. However, the business, economic
and urban models being followed are more from the UK, the USA and China. And if
we see where these countries are on the Gini Index, we find them outside the optimal
range - on the more unequal side.
Can we even imagine the upheaval that
moving along this path could cause in a country like India?!
So what is
the solution? What should the Indian model be? And what role can retailers, especially
modern retailers play in this?
I believe that it is high time we start
creating economic growth where the maximum people are - in India's case that is
still the villages rather than the cities. Secondly, the small scale sector is
the largest sector. The government needs to look more actively at policies that
encourage agricultural development and the growth of small scale sector companies.
If we need buzzwords to create a wave, let's use "Agricultural Product Outsourcing"
(APO) as a buzzword; let's drive India's strengths in "Small Production Outsourcing"
Similarly, retailers need not get cowed down by the mega plans
announced by the likes of Reliance and Bharti - India can accommodate hundreds,
maybe thousands, of farm-to-fork initiatives.
Retailers need to shift
their attention from the assumed middle class (who are actually quite rich) to
the true middle class. (I've written elsewhere about that issue.)
of domestic brands is another area where retailers can have a huge impact - as
we mentioned, the emergence of strong domestic brands has a huge impact on the
economic profile of the country. And in most cases, the most successful brands
actually grow out of small scale businesses that are commonly dismissed as mom-and-pop
or pop-and-son! Modern retail can have an enormous impact in supporting the emergence
and growth of these in India.
I do believe that successful retailing is
not about throwing mega-bucks at real estate and advertising, or paying humongous
salaries. Apologies if this sounds completely contrary to the "gung-ho" feeling
that most people have about the retail sector. But the sooner we face this issue
and tackle it wilfully, the better it is - for all of us, including the retailers.
We need to start looking at retailing from a completely different angle,
and look at its role in creating a new economic profile of India. Retailers need
to critically look at how they interact with the rest of the economy in a totally
Once we are able to do that, we will also be able to make the
shifts that are necessary to create a more sustainable economic environment and
more widespread prosperity. And that is most definitely in the interest of the
retailers. "Inclusive growth" should be more than a buzzword for retailers - it
is the way for them to create sustainable growth for their own businesses.
So - in this context - if you are a retail entrepreneur, or a retail employee,
what's your resolution for 2007?
(c) Devangshu Dutta, November 2006
Devangshu Dutta is chief
executive of Third Eyesight, a consulting firm focused on the retail and consumer
products sectors. This article expresses his personal opinions and is based on
a presentation made at the CII National Retail Summit, November 2006 (open
PDF). The speaker panel also featured Ireena Vittal (McKinsey &
Co.), Roopa Purushottaman (Future Group / Pantaloon Retail), Suman Bery (Director
General of the National Council for Applied Economic Research - NCAER).