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 Jayaraj Singh and Sahil. Gupta for a daily spotlight.
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