For our consumption engine – and our consumption economy – to realise its potential, the supply side has to really understand how enormously large this can be, and in fact, already is. Benchmarks and ambitions should be based on the potential of the opportunity, not on past sales. The questions we need to ask are: How high is up? How many people have this need? At what price-performance point will they upgrade to better ways of fulfilling this need? From matkas to water coolers; from mosquito coils to transparent gels on the body; from belief in destiny to goal-based savings plans; from trains to planes and so on. Growth of consumption in Tier-2 cities or rural India should not surprise us. For a long time, they have been pockets of money in search of supply, sort of all dressed up with nowhere to go! Then came new kinds of supply and the market blossomed.

Growth in car purchase these last two quarters is not unexpected; for the upper-income people, confidence, incomes and wealth have returned to the way they were before the uncertainty. Four crore two wheeler owners and 40 crore-plus mobile owners are begging the question, “What more can we do for them to build on this?” If we observe the supply side in a more unorthodox way, we can see that we are a shortage economy already – see the crowds at every reasonably-priced place of consumption, whether it is the bhelpuriwala or the wait for the better known tarot card reader, airport check-in queues, etc. But at the same time we keep reminding ourselves that several of the high-end malls are going empty; that the Bandra-Worli sea link failed to meet its projected numbers (the Gurgaon story was the opposite); that housing inventory available in many cities is unabsorbed or that top line growth of big companies isn’t at 30 to 40 per cent year-on-year. However, the truth is that many of these failures of anticipated demand not happening actually lie in supply side miscalculations, either based on an unwillingness to accept that the creamy layer that all this is targeted at is not yet thick enough; or due to shoddy consumer behaviour analysis.

Let’s take a reality check here. Forget income statistics – consumption, like maternity is a certainty while income, like paternity, is a matter of inference. Chris Butell of IIMS Data defines the consuming class as the one with its own transport, entertainment and communication devices, and puts the number at 46 million households or 230 million people, a number far higher than the estimates of market sizes put out by global consulting firms. Durables penetration data by quintiles (NCAER) shows that only top quintile and a small part of the next quintiles have started their consumption journey. Our most popular market definition for consuming class of SEC A/B does not even cover the urban households in the top quintile. You have to add half the SEC C households to get that. However you look at it, the main event of our consumer story is yet to happen, and we are already running out of capacity and becoming a shortage economy. And if we get consumer acceptable price-performance right as some industries have, we can see the instant explosion in demand.

The author is an independent market strategy consultant.
This is the first of a monthly column.