AT KOTKASIM, ABOUT a two-hour drive from Alwar, Rajasthan, I first heard of Paanch Bhai soap. Jaisingh Vyas, who introduced me to it, ran a grocery there. Last year, the government launched a pilot scheme to transfer kerosene oil subsidies directly as cash to the poor. Money was deposited into the bank accounts of Kotkasim’s 25,000 residents who hold below-poverty-line (BPL: a government measure for low-income groups that need state dole) cards to buy kerosene in the open market for around Rs 50 a litre. Before, they were entitled to subsidised kerosene, which cost Rs 15 a litre at government ration shops. Each person has a monthly quota of three litres. The cash transfers were intended to make good the difference in prices in the open market.
Two things happened after the scheme was introduced: One, Kotkasim’s entire supply of 84,000 litres of kerosene, earlier ostensibly sold out, dropped to 22,000 litres. Two, only half the BPL card holders could get themselves a bank account (to receive cash transfers) because of bureaucratic delays, lack of banking staff, and the inability to grasp banking paperwork because they were poorly educated. If, on the one hand, the scheme helped curb rampant illegal sale of kerosene, on the other, it highlighted India’s usual problems of implementation. Cash transfers have been rolled out for 25 schemes across 121 districts and have since affected around 10% of the population across the country.
But what’s this got to do with soap? Vyas tells me that many buyers of Paanch Bhai are beneficiaries of the cash transfer. “People hear all the time, through government campaigns, that soap needs to be used to stay healthy. So, when they get some money, soap is one of the things they buy.” Sales at his tiny shop have gone up from one or two bars of soap every day to four or five.
Between 2004 and 2013, the Congress-led government built 340,554 toilets under the Nirmal Bharat Abhiyan, its flagship programme that aims to drastically reduce the number of Indians without access to toilets. As much as 50% of the country’s population defecates in the open, but that’s down from about 75% two decades ago. This push for better sanitation, coupled with the cash transfer, is something that makes Desh Bandhu Madan happy. His family owns the Paanch Bhai (or Five Brothers) brand, which was started by his father and uncles in 1957. With six factories in Faridabad, Haryana, each of which had a turnover of Rs 24 crore last year, Madan and his brothers have captured most of what he calls “pehli baar” or first-time customers in Haryana, Rajasthan, Punjab, Himachal Pradesh, Uttar Pradesh, Gujarat, and Jammu and Kashmir.
Paanch Bhai is value for money. At Rs 44 a kg, wrapped in yellow wax paper, it is one of the cheapest branded soaps available. Premium products such as Wheel or Rin from Hindustan Unilever sell at around Rs 50 for 160 gm. Madan says the demand for Paanch Bhai has been growing at more than 10% each year for the last three years. Each factory sells 550 tonnes of soap a month. Still, demand outstrips production by at least 50%.
“You have to understand who buys my soap,” explains Madan. It’s the village woman who has been using ash to clean up for a long time until she learns of government campaigns and goes to buy the soap. Washing soap invariably doubles as hand soap in this market.
THINK OF IT as a rights-based economy, if we were to extend the government phrase of “a rights-based governance system”, at work. Economists have always debated the social and economic aspects of India’s roughly Rs 1.9 lakh crore annual spend on social welfare schemes, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the Sarva Shiksha Abhiyan (SSA), which promises free primary schooling. But few have examined the impact of all that money through the lens of rising purchasing power, mostly in rural India. Experts say two decades of economic growth and the last 10 years of sustained government spend have fuelled a unique transformation in many villages.
What the soap example shows is that when subsidies move from kind to cash, beneficiaries find the best use for it, often in areas that the state wouldn’t have thought of (less kerosene, more soap). Other schemes like MGNREGA, which are fuelling the rights economy are also putting cash directly in the hands of beneficiaries, while those like SSA allow the poor to redirect the money they would have otherwise spent on their children’s schooling.
It’s difficult to ascertain the size of the rights economy. For one, there are still enough leakages to distort the estimate. Then, it’s not a part of the rural economy as we know it, but a subset of it. No study has been done—it is perhaps not even possible—to demarcate which part of the purchasing power of the poor comes from gross domestic product (GDP)-led growth (fuelling the rural economy), and which through social welfare schemes. Often, the lines between them blur. But there is enough evidence that the two are now going hand in hand to effect economic change across India’s villages, where around 68% of the country’s population lives.
When C.K. Prahalad wrote his seminal book, Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, in 2004, he’d argued that companies would discover a huge market if they made products the poor could buy. It essentially meant seeking out an existing market and fixing the supply.
The beauty of the rights economy—and why it’s attractive to companies—is about spawning a new set of demand. When people who have rarely had any “disposable income” get access to hard cash, what they choose to buy, even if in small quantities, forms the heart of this economy. The rights economy is often about people who aspire to surpass their relatively poor rural neighbour’s purchasing power and buy an expensive product, say a bottle of Coke or Pepsi, instead of three cups of tea at the roadside stall. Indeed, one way of looking at the rights economy is to see it as an aggregation of splurges.
“When the poor get cash, they spend it exactly the same way as the middle class—on private education, private health care, and food, from subsistence level to fruits, vegetables, and meat,” says economist Surjit S. Bhalla, shattering the notion that the poor spend differently from the middle class. (Bhalla also believes that most of the subsidies don’t reach the beneficiaries.) He cites the experience of Santiago Levy, the father of the cash transfer system in Mexico in the mid-1990s. Levy, who was undersecretary in the Treasury department when he proposed the cash transfer plan, had famously said: “Once you realise that all you are transferring is income, the obvious question is why don’t you just give them income directly.”
The success of income transfer was seen in two pilot projects in Madhya Pradesh between June 2011 and January 2012. Conducted by charity organisation SEWA Bharat and UNICEF, 6,000 people across two villages were given Rs 300 per adult and Rs 150 per child with no restrictions on how to spend it. The main items they bought were better education for children, better walls, better food, and roofs for their homes and toilets.
For Madurai-based Manikam Ramaswami, managing director of the Rs 1,500 crore Loyal Textiles, there’s a “forced trickle down” benefit. He cites a survey by the textile industry a year after the MGNREGA was implemented in 2006. It showed a 26% rise in purchase of textiles among BPL families. “What we were paying our workers—Rs 60 a day—was below subsistence. But I could not have unilaterally raised pay, because competition would price me out. The MGNREGA made the market equal for everyone.” Today, he pays a minimum wage of Rs 180 a day.
PRADEEP KASHYAP, FOUNDER and CEO of MART, India’s biggest rural marketing consultancy, talks of how often he sees an empty pack of Dove soap lying in a village room. “It says we are not left behind.” The premium Unilever soap is growing at 100% annually in rural India. Kashyap, who has spent 30 years working in villages, says the country’s social sector spend (Rs 190,000 crore) is more than the Rs 1.7 lakh crore annual turnover of its soaps, clothes, and food industries.
He believes that a few things are causing this. One, most people living in villages no longer till the land. Farming accounts for only 40% of the agrarian economy (some call it the rural GDP). Manufacturing, a bulk of which is low-skill (20%), including traditional crafts and artefacts, and services like rural retail, make up the rest. The other factors are migration from villages to towns and cities, the reach of mass media, and ever-improving connectivity between villages and cities. (Think all-weather roads and limits of cities like Delhi or Mumbai expanding into ever-intermingling city-villages.) “When people talk of direct cash transfers, there is also a direct culture transfer that is happening rapidly from urban to rural India, where urban habits are quickly picked up and adopted, through the media,” says Kashyap.
Economist Sudipto Mundle, formerly with the Asian Development Bank, points to another factor: He says that, compared to the middle class, the poor have the maximum propensity to spend (and conversely, the least to save), given the opportunity.
All of this is leading to a relook at the existing notions of rich-poor, or urban-rural divide. According to Pratap Bhanu Mehta, president of the Centre for Policy Research, the country’s leading think tank, “This Bharat versus India divide—what is good for rich India is not good for the poor—does not hold anymore. Bharat and India are far more interlinked through domestic migration, remittances, formal and informal labour, and endless feedback loops than people can think of. What is happening is a combination of growth and government spending.”
This is best illustrated by Vivek Puri, who runs Puri Oil Mills, whose P Mark mustard oil is one of the strongest players in Jammu and Kashmir, Punjab, Himachal Pradesh, and Haryana. Its annual turnover is Rs 250 crore. “My grandfather [who started the company in 1933] and father would talk about how people use mustard oil for body massage across India. Five years ago, I realised the trend was dying even in villages. Young people don’t like mustard oil for massage. It is too sticky and pungent, and not in the least fashionable,” says Puri.
He hired scientists to experiment and the result was Shakti, a light, perfumed oil for massage, which comes in 100 ml bottles for Rs 50. He, however, insisted on dowdy packaging. “Most of our buyers are women who live with their in-laws, and while they want to buy a superior product, they don’t want to be seen spending money on a fancy cosmetic product.” The slightly shabby packaging helps them buy Shakti oil, and yet not get into trouble at home. Demand for Shakti has been growing at 8% annually.
Rural aspirations and what happens when money trickles down are best understood through a research that scholar Chandra Bhan Prasad did in collaboration with the University of Pennsylvania and the Harvard Kennedy School. Prasad has been advocating fighting social ills like untouchability through capitalism. His theory that pizza delivery has no caste points out that orthodox Hindus who would not accept food touched by the Dalits never bothered to ask the caste of the pizza delivery boy. About the survey, Prasad sums up that for the very poor and the lower castes, even the act of purchasing a bottle of cola from the same shop as the wealthy and the upper caste is an act of defiance that drives demand.
In 2010, he, along with three other researchers, studied 19,087 Dalit households in two districts of Uttar Pradesh—Bilaria Ganj in the eastern district of Azamgarh, and Khurja at Bulandshahr in the west—to compare their lives before and after the economic liberalisation between 1990 and 2008. The survey found a sea change in the ownership of consumer items. It was revealed that in both areas, TV set owners grew 33%, 45% more households had fans, mobile phone ownership jumped from near zero to almost 35% of households, and 50% more people had started living in concrete homes. To get a sense of how impoverished the people used to be: For the first time, a quarter of households in both areas had armchairs.
There was an even more intimate transformation. People here barely used toothpaste; this changed by more than 65%. The use of shampoo, another unheard-of luxury, jumped to nearly 70%. The impact it had on centuries of discrimination, where it was forbidden to drink or eat from utensils touched by a Dalit, was that instances of upper-caste people eating and drinking at Dalit homes rose more than 70% in the east, and nearly 45% in the west. “The rights economy will only expand the sociological impact of what is already underway in India’s rural economy,” says Prasad. The survey was unique in that the questions were framed by Dalits, to reflect their lives and concerns, and not by any upper castes.
Social scientist and author Dipankar Gupta, who has spent 40 years studying the rural markets of India, however, says it’s wrong to term these people as consumers. “The increase in purchasing power doesn’t make them consumers,” he says, adding that a consumer is someone who buys things purely out of desire. This is, at best, an increase in purchasing power for a few and the items bought are of dire necessity. He adds that the government’s ability to stop the theft of money spent on social schemes will be critical to the increase in purchasing power. States that govern the best, like Kerala, may be impacted the highest.
SO, WHAT DOES this understanding of the rights economy do to conventional business? One, it will challenge consumer goods companies’ classic market segmentation by population, income, and education (SEC A, B, etc). Nikhil Joshi, managing director of Sapat Tea, a company that operates only in Maharashtra, is aware of this challenge. He uses 12,000 marketing agents, which gives him immense insight into how consumers think. To sell one of his labels, Sahyadri Tea, in Vidarbha three years ago, he realised just pricing cheaper than competition would not work. “Though the people were poor, they wanted to buy something different and get the satisfaction of buying something better than usual.” Pitched as an extra-strong tea, Sahyadri now sells at roughly a premium of Rs 5 to other brands (Tata Agni, Assam Dust) for a 250 gm pack, and is growing at 20% annually.
Or, take the example of Rajkot-based Chandubhai Virani’s Rs 1,000 crore chips and snacks empire, Balaji Group. Virani sells wafers for Rs 5 a packet. Balaji has 90% of the market in Gujarat, and by some estimates more than 75% of western India. Seven plants of Balaji process 5 lakh kg each of potatoes and pulses every day. It’s the second-biggest player in this category with an all-India market share of 14%. Virani says 70% of his revenue comes from the lowest-priced items, targeted at people “who need to eat cheap, quickly, and what fills their stomach and does not make them ill”. He travels through construction sites and villages every week to see if people are buying Balaji. One trick he employs to keep his costs low: He uses zero advertising.
Virani, who started out as a canteen boy at a local film theatre in Dhundoraji, about 80 km from Rajkot, says “part of the demand comes from a giant sociological leap”. He argues that earlier villagers thought of packaged foods as stale. “Now the idea of bacteria is understood by everyone, even by BPL customers. Something sealed in a packet is considered safe,” he says, adding, “Anyone can open a Rs 10 pack of chips from any international company and one of our Rs 5 packs, and see if there is any difference in quality.” (According to a Nielsen study, in 2011 more than 58% of demand for salty snacks came from rural India.) Then, as an aside he says that for the past one year, PepsiCo (makers of Lay’s) has been aggressively trying to buy a 25% stake in his company, but he isn’t selling.
Adi Godrej, chairman and managing director of Godrej Industries, is a strong supporter of the MGNREGA. The scheme, he thinks, is good because it is creating millions of new customers. Companies should focus on having products ready for them, he says. “There is full reach in only three things—toilet soap, detergent, and matchsticks. In everything else, there is a long way to go,” says Godrej. Already, 35% of his sales come from rural India.
Biraj Patnaik, principal advisor to the Supreme Court Commissioners on the Right to Food, says industry must realise that rural demand saved India during the 2008 crisis. “A lot of it was helped by the MGNREGA.” He echoes Godrej when he adds that the government is helping India Inc. by creating millions of empowered future customers for them through rights governance.
However, the rights-based economy still has a long way to go. Yamini Aiyar, whose Accountability Initiative is India’s only organisation that tracks grassroots government spending, says this kind of demand has barely scratched the surface because of lack of delivery mechanisms. “The trouble is that we don’t have the district-level or block-level people to implement government schemes, including cash transfers.” She rues the fact that we keep talking about technology, but on the ground people can barely use pen and paper correctly. Rights governance, coupled with rural economic growth, is waiting to fuel an explosion of demand. But industry needs to push for administrative reforms and provide better training to tap it. “What they would be doing is securing very large future markets,” says Aiyar.
