R Ravimohan: Consumer: protect thyself

An organised consumer interest movement will help improve the market system

When markets were liberalised, one thought buyers' clout will increase and their interests would be automatically protected by market forces.

After a decade of flirting with market systems, it is clear that market discipline is no panacea for all consumers' troubles.

Then came the march of the regulators. Rationed powers, dichotomy between public policy and consumer interest and inefficiency have diluted the just protection they could afford to consumers thus far. Is the consumer safe under these circumstances ?

While choice for consumers has increased in respect of most products and services, structural impediments in effect restrict consumer choice.

Take for instance telecom services; the cost of switching from one service provider to another remains high. Change of numbers, realigning roaming networks, adjusting and understanding competing tariff plans and indeterminate level of service standards are enough disincentive for a switch.

In another example, while consumers now have an inexhaustible array of television channels to choose from, the structure of the cable distribution activity ensures that the MSO (multi-system operators) hold both the channels and the viewers to ransom. Consumers have very little say in what channels they get to choose from and are at the mercy of the MSOs.

They have little power to choose the MSO as cartelisation has helped operators carve out areas of understanding among themselves. Quality of reception is often poor and there is no forum to rectify this malady.

Crucial events (sporting events particularly) are often used by the MSOs and the channel owner to indulge in skulduggery, denying consumers the pleasure of watching those events "" the prime motivator for purchase of television sets in the first place.

Consumer decisions involving longer term commitment or larger amounts of money such as insurance products, financial products like loans or savings, have pretty high switching costs, which are not explicitly understandable.

Durable items like automobiles are usually life-time investments for most Indians. Withdrawals of models, closing of operations or lines of production of particular models usually leave the consumer high and dry with respect to ongoing service needs. Conditions attached to warranties and life service guarantees are met with varied responses with only a few sellers taking their commitments seriously.

Regulators such as the few that have been created are largely focussed on harder issues relating to the market than the type of softer issues enumerated above. Most of their approaches also seem to suggest that they lay a faith in market forces as enough of a discipliner.

They have therefore concentrated on issues such as structure of market, ensuring adequate level of competition, pricing and tariff and in a few cases an attempt to ensure universal service obligations.

However, given the infirmities in delivery and service transmission, the qualitative aspects of consumer interest are not addressed adequately in the regulatory disposition.

In a heterogeneous consumption society like India, perhaps it is to be expected that market discipline and regulatory intervention will be less than effective. The reason is not far to seek. Indeed sometimes the combination of the two subjugates consumer interest unjustly.

The electricity industry is a typical example. For no fault of theirs, paying consumers pay more than the supposedly poorer consumer and the thieving consumer! In most cases the regulator, perhaps due to the burden of the past baggage, ordains such a system.

The regulator, balancing the interest of the poorer sections of the consuming society sets differential tariffs, with the richer consumers subsidising the poorer consumers. Maybe in a public policy context this is acceptable.

But in a market system, how can this be justified? The same argument holds good for the system of cross subsidy that exists in the petroleum sector as well.

In a different context, banks charge a larger spread between their cost of borrowing and lending rates to compensate for the loans that are not being paid by a few of their borrowers. In that sense, the repaying consumers of the banks pay more to subsidise the cost of non-performance by a few of the other borrowers.

Given the division in income dispersions and the divide in social indicators of the consuming class, perhaps the regulators need to compromise consumer interest by balancing the needs of the society at a higher plane of allocative justice. If that were to be the case, as long as the social divide continues, it is reasonable to expect that the regulators will continue to balance public policy with consumer interest.

At a larger level, this would also mean that brute market forces will find it difficult to discipline the market as the power of consumers will be diluted with different classes of consumers harping for different purchase considerations. Sellers will both take advantage of this division and seek regulatory intervention to support compromised delivery on promised benefits.

So, whither is the protection of consumer interest? As the market system of our economy develops, it is not healthy to let this dichotomy flourish. It will lead to frequent disruptions of market. In the long term, it is also not good for the sellers, as they get used to taking advantage of the fractious markets in India and never prepare adequately for competition with global majors.

Many global players, especially those that are from more developed market systems are used to higher level of market discipline and have adjusted cost factors to be competitive under those circumstances.

When it comes to a crunch, they would be at an advantage vis-a-vis the Indian players. Even at the individual consumer level, as our consumption spending increases, it is important to address this basic malady of our market structure.

The only solution is to fortify self protection groups of consumers. The state can help by encouraging and legislating more power to the consumer courts. Service quality rating is another important service segment that must develop to improve the market system.

But the greater initiative has to come from consumers themselves who have so far not organised themselves in any visible manner. Most have perhaps not understood the power of consumer unification.

To that extent, the system of educating consumers on their rights must be encouraged. Speedier and effective justice to consumers who are slighted by sellers also needs to be instituted. Certainly the muddle in which our court system is currently in does not auger well for the consumer movement.

Hopefully this will be one additional pressure point for revamping the judicial system in the country. If consumers realise that by claiming their legitimate rights, their joys as consumers can multiply many fold in terms of reduced prices, improved quality, true choice of service providers and a good prior knowledge of the level of service from a chosen provider, they would perhaps push for improvements in the market system.

The argument here is not for the US type suit-mania that has perhaps moved to the other extreme, but a more reasonable and equitable consumer interest movement that will augur well for the budding market system in India.