ET BureauIndian consumer firms could see revival of demand by mid-2015-16, says Willy Kruh, global chairman for consumer markets at accounting and advisory major KPMG. Kruh — who works closely with firms involved with inbound and outbound investment strategies in BRIC countries including India and China — believes the relatively young population in India, the pro-business government under Prime Minister Narendra Modi and the rollout of the goods and services tax, GST, will together give a huge boost to the economy and boost consumption. "While there’s a difference between aspirations and execution, the first steps have been taken and I truly believe the opportunity has never been better," he told ET’s Ratna Bhushan in an interview. Edited excerpts:
Q. When do you foresee revival of consumer demand in India?
Last year people were not sure about where the economy was going — there was complete stagnation in infrastructure, in sectors like telecom and mining. But this year, positive results are coming through. Clearly consumption is going to go up. If someone was growing 10%-12%, they could see 17%-18% growth. From April 2015 onwards, we should start to see stronger consumption. Revival will happen…when consumers have money, when seniors start spending on healthcare, and when the GDP goes up. What I see still as problematic is multi-brand retail. Consumers will just go online to buy products they want to. They will buy the products one way or another.
Q. What makes you optimistic about revival of demand?
There are multiple reasons for the optimism. In India, you have the combination of a relatively young population — 75% of the population is under 45 years. Anywhere between 55%-80% make less than $2 a day. The (Narendra) Modi government spoke a lot about dealing with poverty. Imagine, if that $2 a day turns into $20 a day – imagine what that would mean for consumption. You’ve got a government now that’s quite pro-business. PM Modi has done various tours. His view is incredibly positive as you’ve seen from The Economic Times summit. GST will be a huge boost. To have a unified tax system will spur growth and spur consumption. Another issue is infrastructure. The opportunity to spend through infrastructure is immense. India hasn’t spent on infrastructure. Another trend is the move from rural to urban. Urbanisation will have a huge impact. Another thing — there are 75-77 million senior citizen in India; no one talks about them. So the amount of money that will have to be spent on healthcare will be a huge boost to the economy. No one is talking about this set of consumers, which is the size of England. Then there’s the focus on manufacturing, as the PM has said. To create manufacturing in India will be a significant boost. It will bring jobs back into the country and shorten the supply chain. The interest rate cut tells the market that we’re open for investment. Inflation is still a problem but there is an element of stability. All of these together make an unbelievable opportunity here.
Q. How long do you think it will take for reforms and policy changes to translate into results?
PM Modi and this government will need a couple of years to prove themselves. But the first part is the psychological part of it, which has already been dealt with. Directionally things are going to pick up. Intent and the right language is there. But there has to be a little history to see the execution play out. A retailer still needs to go through 64 licenses to set up a store. That’s a huge impediment. Having the government speak in one voice and everyone rallying behind the PM, is what would work. But it’s not as if you turn the lights on and everything happens right away. Many economists have predicted that the growth rate in India will be ahead of the growth rate of China. India has been relatively stable compared to the rest of the world. So we’re quite optimistic about how the economy is shaping up.
Q. Which Indian firms do you believe have the potential to achieve global scale?
ITC, Godrej, Marico, Dabur (and) Emami are out in the market place doing innovative things. They are innovating, changing packaging, pack sizes, convenience of use, tapping emerging economies, all with great traction. Among global firms here, PepsiCo, Unilever, Nestle and Coca-Cola are deeply entrenched here — their investments are a vote of confidence in the Indian economy.
Q. There are examples of global firms which have been facing turbulent challenges in India. Where do you think they went wrong?
I don’t want to get into specifics. But there are many companies that didn’t do proper due diligence, some did not understand FCPA (Foreign Corrupt Practices Act of the US) issues. Some have been arrogant about not understanding cultural nuances and thinking that India is a homogenous market. Pricing is something many companies didn’t understand — what’s better, 50% off or 1 plus 1 free? The better ones did. Some of them started small, and they are the ones who are thriving now.
Q. What can brands do to protect themselves better on social media? Last week McDonald’s faced a huge backlash on social media because a destitute child was not allowed to enter a store in Pune?
We just brought a firm in Australia that deals just with social media risk. The better companies understand the power of social media – they understand how something good or bad gets out there immediately. These companies have to properly train their people. If you have someone with an unhappy experience, you have to respond in real time, unless it’s completely frivolous and you don’t want to elevate the issue. All companies should have a group that only monitors social media.
Q. When do you foresee revival of consumer demand in India?
Last year people were not sure about where the economy was going — there was complete stagnation in infrastructure, in sectors like telecom and mining. But this year, positive results are coming through. Clearly consumption is going to go up. If someone was growing 10%-12%, they could see 17%-18% growth. From April 2015 onwards, we should start to see stronger consumption. Revival will happen…when consumers have money, when seniors start spending on healthcare, and when the GDP goes up. What I see still as problematic is multi-brand retail. Consumers will just go online to buy products they want to. They will buy the products one way or another.
Q. What makes you optimistic about revival of demand?
There are multiple reasons for the optimism. In India, you have the combination of a relatively young population — 75% of the population is under 45 years. Anywhere between 55%-80% make less than $2 a day. The (Narendra) Modi government spoke a lot about dealing with poverty. Imagine, if that $2 a day turns into $20 a day – imagine what that would mean for consumption. You’ve got a government now that’s quite pro-business. PM Modi has done various tours. His view is incredibly positive as you’ve seen from The Economic Times summit. GST will be a huge boost. To have a unified tax system will spur growth and spur consumption. Another issue is infrastructure. The opportunity to spend through infrastructure is immense. India hasn’t spent on infrastructure. Another trend is the move from rural to urban. Urbanisation will have a huge impact. Another thing — there are 75-77 million senior citizen in India; no one talks about them. So the amount of money that will have to be spent on healthcare will be a huge boost to the economy. No one is talking about this set of consumers, which is the size of England. Then there’s the focus on manufacturing, as the PM has said. To create manufacturing in India will be a significant boost. It will bring jobs back into the country and shorten the supply chain. The interest rate cut tells the market that we’re open for investment. Inflation is still a problem but there is an element of stability. All of these together make an unbelievable opportunity here.
Q. How long do you think it will take for reforms and policy changes to translate into results?
PM Modi and this government will need a couple of years to prove themselves. But the first part is the psychological part of it, which has already been dealt with. Directionally things are going to pick up. Intent and the right language is there. But there has to be a little history to see the execution play out. A retailer still needs to go through 64 licenses to set up a store. That’s a huge impediment. Having the government speak in one voice and everyone rallying behind the PM, is what would work. But it’s not as if you turn the lights on and everything happens right away. Many economists have predicted that the growth rate in India will be ahead of the growth rate of China. India has been relatively stable compared to the rest of the world. So we’re quite optimistic about how the economy is shaping up.
Q. Which Indian firms do you believe have the potential to achieve global scale?
ITC, Godrej, Marico, Dabur (and) Emami are out in the market place doing innovative things. They are innovating, changing packaging, pack sizes, convenience of use, tapping emerging economies, all with great traction. Among global firms here, PepsiCo, Unilever, Nestle and Coca-Cola are deeply entrenched here — their investments are a vote of confidence in the Indian economy.
Q. There are examples of global firms which have been facing turbulent challenges in India. Where do you think they went wrong?
I don’t want to get into specifics. But there are many companies that didn’t do proper due diligence, some did not understand FCPA (Foreign Corrupt Practices Act of the US) issues. Some have been arrogant about not understanding cultural nuances and thinking that India is a homogenous market. Pricing is something many companies didn’t understand — what’s better, 50% off or 1 plus 1 free? The better ones did. Some of them started small, and they are the ones who are thriving now.
Q. What can brands do to protect themselves better on social media? Last week McDonald’s faced a huge backlash on social media because a destitute child was not allowed to enter a store in Pune?
We just brought a firm in Australia that deals just with social media risk. The better companies understand the power of social media – they understand how something good or bad gets out there immediately. These companies have to properly train their people. If you have someone with an unhappy experience, you have to respond in real time, unless it’s completely frivolous and you don’t want to elevate the issue. All companies should have a group that only monitors social media.
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