Cut-price offerings

One of the most welcome features of the competitive marketplace that has been ushered into India by the reform process is consumer benefit through lower prices.

This has been evident in everything from consumer durables to cars, and from the cost of retail finance to everyday items like fruits. Despite inflation over the past decade of close to 100 per cent, TV sets cost no more today than they did a decade ago, and the cheaper car models are available at virtually the same price as in the mid-1990s.

Adjusting for inflation, both have in effect halved in price. Housing loans are going at interest rates that are much less than half the rates of the mid-1990s, while the purveyors of fast-moving consumer goods, like Procter & Gamble and Hindustan Lever, have been busy announcing price cuts in recent weeks, in an effort to push sales.

Coke and Pepsi too are in the market now with offers that are at the same price level as when they first entered the market a decade ago. And newspapers have been busy with their own price wars while adding more pages and more colour.

So, while new inflationary worries have surfaced (and it is a sign of the changed expectations regarding prices that inflation rates of over 5 per cent are considered a matter for policy intervention), it is encouraging that news reports suggest the Indian consumer will continue to benefit from low-cost offers in new sectors.

Two examples that surfaced last week are aviation and hotels. At least four new budget airlines are proposed to be launched, with fares that will be little more than half those being charged today by the mainstream airlines "" thus bringing to India the low-cost flying options that have been grabbing market share in both South-east Asia and Europe.

And the Tatas "" inspired by Prof C K Prahalad's oft-propounded thesis that the volume market in India is at the price-conscious end "" have announced the launch of a new line of budget hotels that will charge no more than Rs 1,000 a night for even double occupancy.

Earlier, and presumably with the same inspiration, Ratan Tata talked of making a car that would be sold at Rs 1 lakh "" less than half the price of today's cheapest offering.

In short, companies continue to re-examine their business models and manufacturing processes, to introduce new products for entry-level and budget-conscious consumers.

Could this process be carried forward, to yet more sectors? The answer should be a resounding "yes". Low-cost housing methods have been experimented with, but not achieved general acceptance; as a result, the majority find conventional pucca housing beyond their reach.

Many agricultural items cost far too much in India, because productivity levels are half what they should be. And, moving up the price and value ladder, anything other than an entry-level car costs at least 50 per cent more in India than in other markets "" mostly because of high duties and low volumes.

A Honda Accord in India costs as much as a Mercedes in the US. In other words, the price revolution has some distance to go. That should be good news for consumers, and spell opportunity for entrepreneurs.