Kanika Datta: A poor opportunity

SWOT

Ever since the United Progressive Alliance (UPA) came to power, Indian policy makers and leftist thinkers appear to have rediscovered the Poor.

So, coincidentally, has big business, thanks to a handy contrarian discovery made by management guru C K Prahalad of a "fortune at the bottom of the pyramid".

At the risk of sounding politically incorrect, I would say that Prahalad's theory is almost as chimeral as the UPA government's grand employment guarantee scheme.

Unlike the latter, though, it is unlikely to be questioned for some time to come, not least because of the formidable credentials of its originator.

Ever since he published his best-selling book last year, many multinationals have gratefully championed Prahalad's theory as they pour into the fast-growing markets of the developing world.

It provides them with an expedient purpose for pursuing opportunistic, if perfectly legitimate, business opportunities in countries where poverty remains an issue.

To be sure, the starting point of Prahalad's premise is that the poor should not be seen as victims, and he talks about the need for "inclusive globalisation".

He is spot-on on both counts. But it would be irrational to suggest that low incomes""however large the base""should be considered a fast-growing opportunity, or that corporations who target these market will bootstrap people out of poverty.

For India at least, such a view pre-supposes a contradictory analysis of the gains to be derived from economic liberalisation.

Forget the breathless hyperbole about India's potential as a market at global talking shops, or even the pro-reformers' claims of poverty reduction.

Hard data from the latest income study published by the National Council for Applied Economic Research (NCAER) (The Great Indian Middle Class, NCAER, 2004) suggest that India is going to be a richer, not poorer, country a decade from now.

According to NCAER numbers, 85 per cent of the country's households were classified as "deprived" in 1995-96. By the end of this decade, their numbers are expected to fall to 52 per cent.

In contrast, the middle class alone has grown two and a half times between 1995-96 and 2001-02. Clearly, if India is able to maintain a growth momentum, the poor, while still large in number, will be a shrinking opportunity.

Corporations instinctively know this. That is why global firms purveying products from cornflakes to ultra-luxury handbags have been setting base here, willing to wait years to earn profits.

And they do so not just because they perceive a large extant market, but one in which purchasing power is palpably strengthening.

In fact, many of the examples Prahalad cites as bottom-of-the-pyramid (BOP) opportunities cannot strictly be called poor-centric in intent.

Sachet shampoos, for instance, were emphatically not a tactic aimed at poor consumers. It was a low-unit-value solution aimed at inducing trials and enhancing usage among all categories of consumers.

It is unclear, too, whether shampoo usage among the deprived category has increased sufficiently to make a significant impact on corporate bottom line.

Likewise, ITC's admirable e-choupal venture may have eased the traditional marketing problems of many poor farmers, but it has benefited wealthier farmers too, principally because it addressed an age-old structural deficiency in agricultural markets.

In several of the examples, it is difficult to escape the feeling that corporations have targeted BOP markets as a sop to acquire government endorsement.

In others, Prahalad appears to be referring to the lower middle income groups, not the truly deprived as the opening chapters of the book suggest.

These are groups that NCAER appropriately calls "climbers" and "aspirers", a realistic assessment of marketing realities.

Indeed, marketing is essentially an aspirational business. Its success depends on making people aspire for goods and services that, as Galbraith presciently pointed out almost half a century ago, they may not necessarily need.

It is patronising to suggest that poorer people may not have evolved wants and aspirations that go beyond the price-value equation.

Besides, it is not entirely clear how enabling the poor to buy your products contributes to their development and progress.

Prahalad suggests that doing so encourages their self-esteem. It could be argued that a far more sustainable way of fostering the feel-good factor is to generate greater opportunities for employment that, in turn, creates a virtuous circle of improved standards of living and higher purchasing power.

Henry Ford understood that truth decades ago. The old truth holds: There is no better solution to poverty reduction than enlightened policies that foster economic growth with equity.

The views expressed here are personal