The benefits of
competition By Siddharth
Srivastava
NEW DELHI - India's economic
reforms have made a difference to the consumer,
who is supposed to be king when competition is
unencumbered. While it is true that many have not
been able to reap the benefits, quite a few have.
The effects are there for all to see.
The
demand is being led by sections of the Indian
economy that continue to perform well. These
include information technology,
business and process
outsourcing, and textiles, which picked up
significantly after the removal of international
export quotas from January 1 of last year. The
Indian economy is being led by the service sector,
with the woeful status of the country's
infrastructure (especially roads, power, ports and
airports) a major bottleneck to manufacturing
growth. There are, however, signs of recovery even
there, with Indian manufacturing recently
recording 11.4% annual growth. Higher global and
internal demand for Indian manufactured goods and
increased purchasing power are some key reasons
for the improved performance of the manufacturing
sector.
With healthy doses of competition
in many pockets, benefits have been passed on to
the customer: consumer durables, for example,
which are bought as income rises. A desktop
computer that cost more than US$1,500 five years
back now can be had for less than $250. To bridge
the digital divide in the country, HCL recently
launched a sub-Rs10,000 ($250) computer. Prices of
laptops have fallen by more than $300 in one year.
The falling prices have been accompanied by higher
quality as the customer turns more discerning. The
cheaper Compaq and Acer laptops are available with
increased warranties, doubled disk space and
expensive add-ons such as CD (compact disc)
writers and DVD (digital video disc) players.
The situation with mobile phones is
similar. A basic cellular phone that sold for $250
a couple of years back can now be bought for less
than $50, with better features, technology and
connectivity. This is courtesy of the multiplicity
of players, including Nokia, Samsung, Motorola, LG
and new entrants Bird and Sagem. Within the
telecom sector, land-line rates have tumbled
because of competition, with firms such as Bharti,
Reliance and Tata extending every facility to the
customer. The government telecom companies too
have geared up and are being equally aggressive
about good service. Not long ago, getting a
telephone fixed in India required some amount of
pleading with the official in charge and the
linesman. Now, they call to find out if all's
well.
A couple of years back, cellular
operators charged for incoming calls. Now, the
calling party pays, with no charge to the person
called. International and long-distance calls were
prohibitive - not so anymore. The latest series of
commercials by Bharti Airtel is aimed at the
common man in every sense - drivers, barbers,
waiters, et al, with monthly cellular cards pegged
at less than $5.
Other desired items, such
as air-conditioners, microwaves, washing machines
and TVs, now cost half the price of just a few
years back. An LG manual 1.5-ton air-conditioner
that cost more than $700 five years ago is now
digital, with a remote, at $400 with add-ons such
as a free holiday package worth $100, gift
vouchers ranging up to $100, as well as free
electrical appliances such as a kettle or a
thermos flask.
Predictably, with so much
cash circulating and willing buyers plentiful, the
Indian consumer-durable market, valued at $4
billion, and the fast-moving consumer goods (FMCG)
market (clothes, soaps, cosmetics, chocolates
etc), valued at $10 billion, are cashing in on the
annual Indian urge to spend that take place in the
festival season quarter (October-December), when
sales are highest.
According to industry
estimates, all brands put together in the
consumer-goods category spent more than $100
million on promotions in 2004, double that spent
for 2003. Korean durable major LG Electronics
earmarked $20 million as against the previous
year's $12 million. LG's competitor and Korean
counterpart, Samsung, also nearly doubled its
budget for the festival period, from $10 million
to $20 million. Several banks, including HDFC,
ICICI, GE Countrywide, Bank of Baroda, and Dena
Bank have launched easy festival credit offers to
entice the consumer further. HDFC Credit Card is
offering diamond pendants and holiday packages for
spending over a certain amount, while others have
relaxed norms to allow for loans at very low
income categories.
Indeed, the list of
benefits being passed on to the consumer only
grows. Cars are another good example. Tata, a
leading automobile manufacturer, has announced
that it will launch a sub-$2,500 car in the market
within the next one or two years. Maruti has
slashed prices on its entry-level vehicles, while
last year Hyundai announced a $1,250 discount on
its small car, the Xing, which costs about $9,000.
Of course, given the existence of several market
players including Ford, General Motors and Fiat,
any deal now comes with a host of freebies
including accessories, loyalty bonuses and free
insurance and service.
One more newly
competitive arena that has benefited the consumer
immensely has been air travel. A few years back,
the government controlled the only domestic
airline in the country, Indian Airlines, whose
record for service and punctuality was not a happy
one. Now there are a slew of players - Sahara-Jet
Airways (after the recent takeover) faces
competition from new entrants SpiceJet, Air
Deccan, Indigo, Paramount and Kingfisher airlines.
The result is a fierce price war that has seen
some airlines offering tickets almost free on a
first-come-first-served basis. These are not
publicity gimmicks, either, as the promise has
been converted into thousands of budget travelers
availing themselves of the hefty discounts.
A journey from Delhi to Mumbai that
usually costs $150 can be obtained by a lucky few
for $5, which is the tax component that goes to
the government. Air Deccan offers travel to any
destination in India at $20, and has seen
middle-class families who had hardly stepped out
of their homes taking exotic vacations to such
destinations as Goa and Kerala. International
travel has also become a lot cheaper, with the
government allowing private airlines to fly
abroad. Regular domestic air travel is now cheaper
than first-class train tickets, promising further
dramatic expansion given the speed advantages.
With the government opening up sections of
highway for private partnerships, toll roads
across the country now provide ground
transportation arteries comparable to global
standards. This has further opened up domestic
tourism, which continues to burgeon. India has set
a target of luring 15 million foreign tourists per
year within five years, an ambitious jump from the
3.7 million visitors the country welcomes
annually.
Indians also love to eat out,
and competition among food retailers has
translated into burgers, ice cream and pizza being
quoted at throwaway prices. McDonald's is
particularly popular, with chicken burgers at 50
cents and ice cream at 15 cents, prices that
resulted in another popular chain, Nirula's,
dipping their prices.
The consumer can
only continue to feel more pampered. Many say the
party has only begun, with top retailers such as
Wal-Mart knocking on the door.
Siddharth Srivastava is a New
Delhi-based journalist.
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2006 Asia Times Online Ltd. All rights reserved.
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