INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Business Commentary/ Mahesh Nair

The Indian consumer is a sucker!

Whenever there is a talk of monopoly, the Microsoft versus Department of Justice trial is the first thing that comes to our mind. To put it simply the trial is all about the US government wanting to punish the Microsoft Corporation for unfairly exploiting its market domination by overcharging customers and not allowing other competitive products access the free market.

While the Microsoft case drags on, I wish there was somebody who took to task numerous public and private firms in India who are taking consumers for a ride. Not only are they overcharging customers for their products and services, they are guilty of prohibiting potential competitors access to the Indian market.

Let me give you some examples.

Look at the car market. Last year a friend bought a Cielo from Daewoo. To his horror, a couple of months later, he saw the same model being offered by Daewoo for almost Rs 100,000 less. With no duty cuts announced to spur the reduction, my friend realised that he had been taken for a ride.

In December thousands of others felt the same when, a day before Telco launched its Indica car, Maruti Udyog Limited which commands 82 per cent of India's car market share, slashed its prices. Models of the car were now cheaper by Rs 30,000 to Rs 50,000 for no apparent reason except the fear of competition!

The rip-off tamasha continued. Ind Auto Limited till recently hogged more headlines for the spat between its promoters Fiat and Premier Automobiles than for selling its Fiat Uno model. But, hey presto! It has now introduced newer and more efficient models with tags cheaper by Rs 50,000 to Rs 100,000!

Let's get this straight. The reason for all these massive price cuts was not a crash in input costs. The cuts were effected because these manufacturers realised that to push sales they had to make the cars more affordable.

All these years automobile manufacturers in India have been ripping off their customers by pocketing profit margins as high as 10 to 15 per cent of their manufacturing costs. Globally the trend is to pocket 3 to 5 per cent and make the car cheaper.

Unlike their four-wheeler brethren, the two-wheeler chaps are unwilling to learn. Scooters cost almost double of what they did five years ago. Motorcycles come for Rs 35,000 to Rs 45,000. The day second-hand cars are easily available for Rs 50,000 in instalments, you can bet two-wheeler manufacturers will begin slashing the prices!

It's the same Milk-the-Customer-Dry Syndrome that prevails in the consumer electronics market. 21-inch television sets were sold for Rs 21,000 a year ago. Today the same is available for Rs 16,000. Cellular phone sets which cost Rs 18,000 two years ago, are now being bandied for half that amount. And no, customs duty or other input costs haven't reduced drastically to cause this slump.

In the service sector, look at cellular phones and Internet. A year ago peak time call rate for the former was Rs 16 to Rs 18 per three minutes. Today it is between Rs 6 to Rs 8.

I paid Rs 15,000 for a 500-hour/one-year Internet connection from VSNL. Last year I had to pay only Rs10,000 for the same amount. This year, I plan to switch to MTNL which is offering me the same service for Rs 8,500.

Of course, both VSNL and MTNL still continue to lead up the garden path yours truly and 150,000 other customers by charging us a local telephone call rate for every three minutes we are on the Internet. In most other countries, Internet Service Providers charge you only for one local call every time you dial into the Net. Here we spend Rs 20 extra every hour, thanks to the monopoly.

Globally, oil and petroleum prices have crashed 67 per cent since 1994. But despite Indian Oil Corporation importing them cheaper, consumers have not benefited a single paisa. Reason: IOC enjoys a monopoly on oil and petroleum imports. So it calls the shots. That is why it figures in the Fortune 500 list. Greatness hasn't been achieved by IOC; it has been bestowed by the government.

Whenever there is a monopoly, customers are always overcharged. With no competition, who is to say what or how much should be charged? The Government of India, the biggest player in the service sector, enjoys draconian monopolistic powers. This is why VSNL charges Indians one of the highest long distance call rates in the world. This is why a domestic flight between Bombay and Calcutta is costlier than an international one between Bombay and Bangkok. This is why insurance premia are higher in India than those in most of the developed countries.

Another bane of government monopoly in services is that it robs Peter to pay Paul. One lot of customers is overcharged, while others pay peanuts. This is why petrol in India costs so high while diesel and kerosene are cheap and cross-subsidised. Internationally, there is hardly much difference between the price of diesel and petrol.

The flip side is that cross subsidies can be used to pamper the votebanks. For instance, to keep the farmers lobby happy, the Central government has waived aside a bill of Rs 8,000 as fertiliser subsidy. In states like Punjab and Tamil Nadu, the farmer does not even have to pay a single paisa for electricity! So the farmer community is not the one which is going to complain against government monopolies.

The sad thing in India is that consumers have been brainwashed into believing that government monopoly is in national interest. That it is the consumers interest uppermost in government's mind when it refuses to let go its monopoly in running the airlines or insurance sector; importing petroleum, sugar or urea; or exporting onions, rice or wheat.

This is probably why we are blessed with a government which mouths swadeshi and disallows the Tata-Singapore Airlines joint venture. And in the same breath, with the help of a foreign partner (Suzuki in Maruti Udyog Limited), decides to battle it out with the Tata's swadeshi Indica!

Consumer interest is a figment of our imagination.

Unless there is free and fair competition in the market, the consumer will always remain a sucker. He will be the king with no clothes.

Mahesh Nair

Business News