Transcript from "Value for Money" on the Indian
television channel - NDTV Profit (2005)
Anand (Studio Anchor, NDTV Profit): In 2005 pay packets of
Indians increased more than workers in the rest of Asia. Sonia
Bhaskar finds out what it means for consumer spending. After all,
what are Indians doing with more money in their hands.
Sonia Bhaskar (Correspondent, NDTV Profit): In the
last ten years the amount that you or I have been spending out
of our wallets has grown at over 10%. That is faster than the
rate of growth of our economy. The reason for this: more money
in our pockets, and the willingness to borrow more to fulfil
Indians, young and old, are riding high on desires to acquire
all that money can buy. This stems from the fatter paycheques
that most Indians are taking home today. Global Human Resource
Services firm Hewitt Associates in its preliminary Asia Pacific
salary increment survey finds that salaries in India grew faster
than 11 other countries in the region.
Says Nischae Suri, Hewitt Associates (India), "Given
the current economic context, the way organisations today are
able to deliver pay-packages is more employee-friendly. Which
means that you give them the money and tell them, well, spend
it the way you want, and I think that is the element of flexibility
that's being built in. What's really helped is that the income
tax laws have provided for that avenue today."
So Indians are on a buying spree. What are they spending on?
Quite a few things; from eating out, to electronics, from children's
education to domestic help. Experts categorise the spending
into regular spends - things that we normally spend on - and
emerging spends - things that we are now beginning to put our
money into. In the regular spend category, the top categories
include food and grocery, eating out, personal care items and
consumer durables. As far as the emerging spends are concerned,
topping the list for Indian consumers is the payment for household
help, and then there's mobile phones and even computers and
laptops. In the last one year, emerging spends have grown 20%
compared to just 4% for the regular spends.
"I think it's younger people who are spending more on
account of relatively high salaries. In TVs, music systems,
we're seeing a huge growth this year. TVs, especially the flat
TVs, are going to be a big driver in the consumer electronics
market in the years to come. People are buying bigger capacity
refrigerators. So these are some of the areas where we are seeing
a very direct impact of higher salary levels," says Arvind
Singhal of KSA-Technopak.
The spending pattern is not just confined to the metro areas
- experts believe that it is widespread across cities and towns
of India. But yes, it is an urban phenomenon, and rural India
is yet to see the surge in income and the desire to spend. As
for the future, experts say that the trend is likely to continue.
Increasingly, your salaries are going to be linked to performance.
So the harder you work, the more you earn, and that will determine
how much you can splurge.
Ambika Anand (Anchor, in the studio): To
discuss the increase in consumer spend in India, I am now joined
by Mr. Devangshu Dutta, He is the chief executive officer of
Third Eyesight, a retail consultancy. Mr. Dutta, thank you so
much for joining us on the programme. Let me begin by asking
you what are the factors responsible for the spurt in increasing
consumer spending in India, and do you see a let up in the years
Devangshu Dutta (CEO, Third Eyesight): There are two
main factors that I see behind the increasing consumer spending.
The first one is that there is a real rise in incomes. For the
last 10-12-14 years there has been a growth in the economy,
there has been a growth in business, there has been a growth
in employment and a real increase in salaries. In fact, in the
recent years the salary increases in India have topped increments
on a percentage to percentage basis when compared to the other
Asian countries. The second one, is that there is a real generational
change - so if you take the generation that has come into the
workforce over the last 3-4 years, this is a generation that
I would call a post-colour TV, post-ASIAD generation, which
has seen options, always. So there is an option to choose from
multiple channels, colour is an option over black and white,
there are options while choosing cars - in everything there
is an option. And that means that they are also oriented towards
spending on something that offers them choice. Today we have
more choice available, and that group of consumers, the young
consumers who are coming into the workforce are also, therefore,
more oriented towards spending more time in areas which give
them more choices. Shopping is one of them, and there is an
increasing propensity amongst them to spend that money as well,
whatever they are earning. As for the trend letting up: I don't
see it letting up anytime soon. We do see rises and falls, we
do see what we might call booms and busts, but overall it's
an upward curve as far as I see it for now.
Ambika Anand: What impact is this increasing
consumer spend having on the economy at large?
Devangshu Dutta: The increase in salary gets invested,
in a sense, back into the economy, it goes back into business
through shopping, and as it comes back into the economy it is
an upward spiral. Broadly, that's a beneficial impact.
Ambika Anand: But do you think the mall
mania in India is really sustainable?
Devangshu Dutta: The retail sector has been developing
organically over a long time. The real boom happened in the
last 5 years, let's say, when Delhi's Ansal Plaza and Mumbai's
Crossroads took off, everybody else started thinking that there
was a boom in the making. When there is a boom in the making,
everybody wants to start investing. What has happened as a result
is that real estate developers, shopping centre developers,
various owners of parcels of real estate have got into the act
of building a shopping centre. Whether those shopping centres
are sustainable or not is a big question mark in my mind. There
are shopping centres which are coming up now which are better
planned, which are better integrated with the rest of the environment
around them, and they are definitely sustainable over a longer
term. There is an estimate in the market that there are likely
to be 350-odd shopping centres that are likely to be developed
in the country over the next 2-3 years. If I were to guess,
a third or maybe even 25% might do very well, a bunch would
completely fail, and the rest would get converted into other
uses - maybe office blocks.
Ambika Anand: There are also a lot of speciality
malls coming in; you have the Gold Souk, you have a Wedding
mall. Are they really value-for-money?
Devangshu Dutta: When we look at the malls that are
coming up as specialised malls or specialised shopping centres,
they are structured around 3 or 4 themes really, at the moment.
One is wedding. Now, if you take weddings, you have a number
of products which you need to buy for a wedding, you need to
buy a number of services, there's lots of gifts - it's a variety
of things. So a wedding mall looks like a workable option. Too
early to say, they are very new at the moment, but the concept
looks workable. Another theme is home. If you take home, construction,
design, if you mix all of that together, there's a huge variety
of products that you could be putting across to the customer.
And that's something again which is very, very workable.
Ambika Anand: Going ahead, one hears about a lot
of hypermarkets coming into India, large format stores. Do you
think Indian consumers' pockets are deep enough to make them
sustainable or do you see a shakeout?
Devangshu Dutta: The hypermarket is a "value department
store", if I can call it that - I'm stretching the definition
a little bit. It's run by one retailer, it's owned by one retailer.
You might have concessions of different brands in the hypermarket,
but it's one operation. Which is different from a mall or a
shopping centre, because in a shopping centre you have different
tenants, each of which is a discrete operation by itself. A
hypermarket, therefore, has one advantage over a shopping centre,
which is that there is one company driving the whole strategy.
Ambika Anand: What are the challenges that
you see, which could spoil the party for the malls and the hypermarkets?
Devangshu Dutta: Differentiation is a huge, huge challenge.
Where do we discover new brands? How do we differentiate one
shopping centre from the next one? The second is oversupply.
The number of malls that are coming up concentrated in a very,
very small geographical expanse - where will they get the customers
from? When you look at it from the urban planning side, most
shopping centres that are coming up in India are not at all
integrated with the towns and cities that they are in. One clear
example is traffic. They are planned for an average flow of
traffic, so whenever you hit a weekend, you will have local
residents almost fearing to get out of their house because there
is this mad rush on the road - not just side roads but arterial
roads getting blocked because of the traffic getting into the
mall. There is no holding area, there is no traffic planning
into the mall. When you take the product mix, it is not relevant
to the local catchment, typically, because the shopping centre
operator wants to fill the mall as quickly as possible, so they've
gone and got the tenants out as quickly as possible. And that
may be completely the wrong mix. And that has an impact on the
success or failure of the shopping centre and the tenants. These
are some of the major issues - there are others, but these are
really big concerns.
Ambika Anand: Mr Dutta, thank you so much
for joining us on this programme.