*If you want to wring the full, unintentional humor out of
this article, you have to first imagine yourself being
Mohandas K. Gandhi. No, Nehru. That's even funnier.
"Here you go, Mr Prime Minister – an economic report
from your nation's future!" "Oh my God – no – I
can't bear to look... wait a minute – we're rich?
That's not so bad... Oh No we're SPIRITUALLY
DEADENED GLUTTED CAPITALIST CONSUMERS
CROWDING TO THE MALLS IN BLUE JEANS!!"
*I kinda derive the exact opposite conclusion out of
this piece that the author himself derives; he thinks
that booming economies in, say, Mumbai can drag
the whole Indian population out of poverty, while, to me,
this suggests that certain high-tech areas in the USA
could cheerily continue to thrive even while desperate
internal migrants from New Orleans and Florida are
sleeping on our pavements, a vast and utterly bereft
American underclass pillowing their heads
on the curbstones in their very millions. Yep, India
may REALLY BE tomorrow's developmental model;
you gotta watch what you ask for, 'cause you may
well get it.
http://www.morganstanley.com/GEFdata/digests/20051031-mon.html#anchor0
MORGAN STANLEY, GLOBAL ECONOMIC FORUM
OCTOBER 31, 2005
India is on the cusp of something big. After my third trip there in 18 months, I am as enthusiastic about India as I was about China in the late 1990s. While comparisons with China are inevitable, the case for India is very different.
What excites me the most is the potential for an increasingly powerful internal consumption dynamic – an ingredient sorely missing in most other Asian development models, including China. India’s constraints – infrastructure, saving, foreign direct investment, and politics – are well known. Yet on this trip, I saw visible progress on most of those fronts. Moreover, the consumption story – the organic sustenance of sustainable growth and development – casts India in a very different light.
Don’t get me wrong – the Indian consumer is hardly a powerful force on today’s global stage. As the accompanying chart shows, India’s per capita income and consumption levels are about half those of China’s. But it is growth at the margin that always drives powerful macro and market trends. And the Indian consumption story is, first and foremost, one of accelerating growth off a low base.
The potential comes from the structure of the Indian economy: Private consumption currently accounts for 64% of Indian GDP – higher than shares in Europe (58%), Japan (55%), and especially China (42%). India’s transition to a 7% growth path in recent years is very much an outgrowth of the emerging consumerism of one of the world’s youngest populations. The increased vigor of private consumption provides a powerful leverage to the Indian growth dynamic that is rarely found in the externally-dependent developing world.
This came through loud and clear on my recent travels through India. Over a span of four days, I met with a number of corporate executives, investors, and senior government officials. Everywhere I went, the focus was on the Indian consumer. I met with the managements of a good cross-section of India’s major consumer companies – Hindustan Lever (softgoods), Pantaloon (retail), Raymond Textiles (clothing), and McDonald’s (fast food).
(((McDonald's – yum! Could I have a little ketchup
with that sacred cow, please?)))
I also spoke with executives from banks and drug companies – all of whom have important consumer businesses. And I met with leading industrial companies such as Reliance, where a major five-year initiative has just been announced for the development of nationwide chain of hyper-stores and super-markets.
I even went to the Phoenix shopping mall in Mumbai, which was bustling with activity. I have made similar trips to malls in China. There was one key difference between these two experiences – the locals were buying in India. This is consistent with what I heard from most of the consumer companies I saw – solid acceleration in same-store sales comparisons over the past six months.
In my discussions with India’s major consumer companies, one thing stuck out – strategy. These companies all had very sophisticated marketing and product development plans. Moreover, the multinationals that were operating in India were doing so with business models that were tailor-made to local markets and customs.
For example, while McDonald’s has the same look and feel as its global brand, about 95% of the menu content differs from that offered in the US. Big Macs come in chicken and vegetable forms. (((Tell it to Mangal Pandey.))) In the pharma area, Indian business practices are tilted increasingly toward consumers – especially those at the low end of the income spectrum in serious need of medicine. In the softgoods area, sophisticated “upgradation” strategies are pushing consumers up the value chain. And all of the banks I met were very focused on consumer-oriented growth strategies, especially in the mortgage finance and credit and debit card businesses.
Most of India’s major consumer players are looking for an imminent consolidation of the country’s highly fragmented retail sector. Currently, there are over three million retail outlets in India – an industry structure that is ripe for efficiency enhancement.
(((That means you, Mom 'n' Pop.)))
The threat of foreign competition is already spurring a big consolidation push. Wal-Mart is apparently poised to enter India as soon as restrictions on retail FDI are lifted. That appears to be no more than 18 months away. In the meantime, local players like Pantaloon and Reliance are scaling up in an effort to meet the coming Wal-Mart challenge head-on. The competitive juices are coursing through the veins of India’s consumer industry. Unlike other Asian economies, India’s entrepreneurs are eager to compete. (((Compete with WAL-MART? Man, that's like watching a bear eating chickens.)))
For me, the highlight of this trip to India was a meeting with Prime Minister Manmohan Singh. Unlike most of the meetings I have had with heads of state in the past, the room was not swarming with aides or other visitors – it was basically just the two of us discussing macro. ((('My Dad Discussed Macro With the Prime Minister of India, and All I Got Was This Lousy T-Shirt.')))
And unlike most heads of state, his rich portfolio of experience as an economics professor, central bank governor, and finance minister put this discussion on a very different plane. In his characteristically soft-spoken manner, he challenged me with some very tough questions – from US current-account financing sustainability and the China investment formula to Indian infrastructure deficiencies, fiscal constraints, and rural employment and income deficiencies.
Dr. Singh is the real thing when it comes to India’s reforms – he led the charge in the opening up of the early 1990s. Today’s political context is obviously quite different: As a majority party official he was able to drive the process far more forcefully back then than is the case today, with a delicate left-leaning coalition government.
Mindful of those constraints, the key code word in current coalition governance circles is “inclusive” – emblematic of a development strategy that is being refocused to deal with the income-disadvantaged citizens of rural India. The Prime Minister is very philosophical when it comes to integrating his reform philosophy within the political imperatives of a broader base of Indian economic development. While his government has been stymied by the politics of inclusion on several fronts – namely on infrastructure and privatizations – I get the strong sense that Dr. Singh does not interpret these developments as fundamental setbacks on the road to Indian reform. In my opinion, he still has the heart of a reformer and the quiet determination to stay the course in the context of major political constraints.
(...)
Of all the trips I make around the world, India is by far the toughest. It’s not just the quality of the travel experience. Poverty is everywhere – not just in rural India but in the swanky neighborhoods of its vast urban centers of Mumbai, New Delhi, as well as in the pulsating new tech centers of Bangalore and Hyderabad. And it is poverty and human tragedy on a scale unlike anything I have ever seen – including that of rural China.
An inclusive India seems utterly determined to meet this daunting challenge head on. As far as I am concerned, there is nothing but upside to such efforts – it’s just a question of degree. But with that upside comes yet another new source of Indian consumption growth – absolutely vital for India’s balanced economic growth dynamic. I have long argued that global rebalancing will not occur as long as the world remains hooked on one consumer – namely the American variety. Think India if you want a way out of that trap. And prepare yourself – here comes the Indian consumer.
