World is Green

Understanding the Indian Consumer Market is a tough ask. Apart from the complexities of the language, size and cultural differences in various parts of India we have the non-uniform growth pattern in all the parts of the country.

Economic Times has an Interview (I don’t know with whom) on the consumer markets in India.

What’s happened in India is different from in a market which typically would have grown in pyramid form: first FMCG, then durables, then electronics, then luxury goods. In an emerging economy, if you look at a hierarchy of needs, there’s FMCG which is akin to basic needs, in the initial stages of development.

Funnily, in India, you actually have large businesses in durables and services, which are larger than FMCG. In category after category, the top-end is where the growth is coming from — fancy TVs, music systems… The market is the top 10 million people. So growths are coming from a dubious small base, but they’re becoming larger categories.

I think if you now look at the last five years, there are entry level employees who are drawing Rs 25,000 a month. Now you’re creating markets — because this is an individual income, being spent on lifestyle goods and services that are superior in nature. So now there are maybe about 60 million people who can afford goods and services, but it’s still a very narrow class of 5% of the population, therefore they don’t become the growth drivers of mass categories like FMCG — the base is too small.

Even though India is a large population of 1,200 million people, the real market for goods and services is a very small part of the population. This is where Innovation is required to provide goods and services to the vast majority of the unserved population.

One issue which is being missed in all this discussion in India is the “sustainability” of the growth. The executive in the interview mentions that “When 100 million people can afford Tropicana every morning, that’s when the FMCG sector will start booming.”

This is good in one sense, but if these Tropicanas are created and sold like in the west then we may be looking at a large scale environmental damage scenario.

This weblog’s previous version concentrated on rural India and the base or bottom of the pyramid markets. In the coming days, I will write more on these issues.

The environment is begging for the Wal-Mart business model.

- H. Lee Scott Jr., the chief executive of Wal-Mart Stores 

Source: NYT 

In Australia there is a constant comparison to India and China while talking about Greenhouse gases. The main argument goes like this:

1. India and China are growing rapidly and so they need to cut their emissions
2. Australia produces only 1% of emissions
3. India and China are not part of Kyoto so we will not be too

Even though this may seem like a fair enough argument, there are flaws.

The number one flaw is the wrong use of comparison metric.

Lucy Siegel in the Observer recently tackles this:

…this development has triggered moaning and a rush of metaphorical sick notes, ‘I can’t/won’t curb my CO2 emissions because India’s are growing.’

This argument would carry more weight if only our own emissions weren’t quite so, well, weighty. Ten years ago the ecological footprint of the average Indian was 0.4 hectares, equating to emissions of 0.81 tonnes of CO2 per person per year. Admittedly this has risen to 1.34 tonnes, but still doesn’t really compare with the average 11.01 tonnes per UK citizen or a spectacular 28 tonnes from those Kyoto opt-out Australians.

Comparing the per capita emissions is the most important part. Another comparison that needs to be done is the per capita income. The per capital at PPP is a better one here.

The following is a comparison from the CIA Fact book (2004):

• United States - Rank 7 ($41,600)
• Australia - Rank 19 ($31,600)
• United Kingdom - Rank 25 ($30,100)
• China - Rank 118 ($6,800)
• Indian - Rank 159 ($3,400)

A visual representation can be found from the world bank. However, this is based on per capita on a market exchange rate which marks India and China even lower.

As we can clearly see, Australia and US are far ahead in terms of Per Capita income. Expecting India and China to follow them in curbing emissions is simply immoral.

Another way to understand this is the Environment Kuznet’s Curve.

From the Wikipedia:

Another situation where Kuznets type curves appear is the environment. It is claimed that many environmental health indicators, such as water and air pollution, show the inverted U-shape: in the beginning of economic development, little weight is given to environmental concerns, raising pollution along with industrialization. After a threshold, when basic physical needs are met, interest in a clean environment rises, reversing the trend. Now society has the funds, as well as willingness to spend to reduce pollution. This relation holds most clearly true for a few pollutants, such as Sulfur Dioxide and Nitrogen Oxide, but there is little evidence that the relationship holds true for other pollutants, especially those with non-local effects, or for the environment in general.

Intuitively this makes sense, however, there is little evidence that it does happen. A high Per Capita income atleast provides the means towards creating a better environment but the will is still needed.

In the end, developing nations like India and China need to work towards “green development” if not for the world’s sake, for their own betterment but if Australia and other developed countries cannot use it as a excuse for their own wasteful economy.

Crikey is a subscription-based independent news agency in Australia. Their main outlet is a daily e-mail in the afternoon and their recently revamped website. Crikey is good for a number of reasons.

• They are fiercely independent.
• They are online (e-mail and website only)
• Link to major newspapers and websites in Australia and worldwide
• Cover all areas (Politics, Business, Community, now more of Climate Change)

Crikey compiled this list of Climate concerned CEOs in Australia.

All the CEOs acknowledge the science behind Climate Change, the greenhouse issue and the need to react fast. They favour a price for carbon - through tax or otherwise.

A senior executive of Origin told the recent Australia New Zealand Climate and Business conference, “Emissions produced are not being priced, that’s our biggest dilemma right now.”

These CEOs are from Insurance companies, Energy companies, retailers, and Banking. These are the strongest arguments out there for a govt. plan.

Tim Warren, the chairman of Shell Group Australia on govt,

…if a solid policy framework based on market mechanisms was put in place “then science and business will do the rest.”

That’s the key - a clear market mechanism and the rest will be taken care of and this is from Shell!