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Part - IV
The evolving market: From the Buyers' Viewpoint
Apparently the move towards a free market was seen as the best possible news for the choice-starved Indian consumer. She was expected to go on a spending spree thereby triggering the multiplier effect as predicted by theory. However, as already pointed out, the growth seems to belie expectations and a lot of hue and cry is being raised about slump in "consumer confidence" which in turn is being cited by many as an impediment to the transition of the Indian economy as a whole. However, it is interesting to look at the available data from the standpoint of consumer spending. Looking at the annual consumption data released by the Central Statistical Organization (CSO), one finds that an average Indian spent INR 14,396 in 2001-'02 that outstripped her 1991-'92 spending of INR 5,213, when the reforms were just getting off the drawing board. This CAGR of 9.7% can be dampened taking into account inflation, when it translates into a real CAGR of around 2.6% (at constant prices), which is still very impressive.
]Then are these complains about stagnating growth and sub optimal saturation justified at all? In order to investigate these, if one dissects the Rupee spent by an average Indian, a structural change in her spending pattern becomes evident. In 1991-'92, 49p per Rupee was spent by her on food that has nose-dived to less than 43p at present (at current prices). On the other hand, spending on health care more than doubled from 3.6p to 7.7p per Rupee. Hence, the peculiarity in the Indian scene is that though the growth rate of per capita disposable income has dropped, albeit marginally, this has not prevented the Indian consumer from exemplifying Engel's law! Hence, the idea that the Indian consumer is not spending is almost a myth and the cause of saturation lies in a structural shift in her preferences. Having said that, it is also to be noted that the average Indian still spends a higher proportion of her household income on her food than her Thai counterpart and more than thrice of what she would have spent had she been in Singapore (before purchasing power parity corrections)!
Where does the Government fit in?
This is perhaps a more difficult question than it appears to be. Huge volumes of literature have been churned out debating the optimal role of a Government in a transitional economy. Irrespective of the side one takes, one must admit that the Government's role as an enabler in a market economy cannot be undermined. Whatever be the optimum role, it can never lead to a loading of transactions in favour of either the buyer or the seller. The role of the Government can be classified into two, both of which enhances the "market-readiness" of any economy:
Ensuring the efficiency of the present market and
Expanding the boundary of the market to include non-marketable populace and causing a structural shift in the market segments.
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*Contributed by -
Suchintan Chatterjee,
Post Graduate Diploma in Computer Aided Managemnet (PGDCM),
IIM Calcutta.
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