India Needs to Pay More to Spend More
By Amogh Dev Rai - Research Director, ASIA
Very close to my office is a sea of green, orange, and yellow jackets and corresponding bikes with young men and women driving a US$ 455 billion gig and platform economy. The gig workers every day, afternoon and night, come sun, rain, and cold, are enmeshed in an economy of time; minutes to delivery count more than safety. In the new economy, these gig workers are supposed to be the new drivers of the Indian consumption story, or so the argument goes.
The gig economy is powering two economic classes in India today; on the one hand, the first-generation founders are taking risks to build businesses that benefit everyone. They have spotted gaps in the market, and powered by their vision and ambition; they build iconic businesses supplying essentials and luxuries in scale and speed. According to research by the Swiss bank UBS, this group, which is the affluent consumption class in India, is the fifth largest consumption market behind the United States, and China has a rate of growth much faster than the other countries. However, this is just 10% of the country's population, so around 14 crore (140 million people), a significant driver of the consumption story but just imagine the possibilities considering the demographic upswing the country finds itself in the middle of. That brings me to the other side of this story.
The other side of the story is full of people who are conduits between the businesses and consumers; they navigate the trough between the hills, which is the Indian consumption story. They form part of a country where, though they are being paid for the labour that they put in, it is far less than what is needed to be a part of the expanding consumption cycle. Forget conspicuous consumption, it is careful consumption. In a report released last month, a venture capital firm, Blume, cautioned that 90% of Indians lack discretionary power to spend.
The low cost of labour drives the expansion in the gig economy; this low cost of labour has ensured that quick commerce has become the silver lining for platforms. The median payout to a gig worker in India is on the lower side of G20. This labour arbitrage allows us to become a 'quickish commerce economy'; here is the Indus Valley report on this, "As quick commerce's success inspires larger horizontal and vertical e-commerce players to start their experiments, we will likely see a speeding up of delivery times in India across most types of deliveries. We will be a quickish commerce country," (IV 2025, Blume Ventures)
However, the low cost comes with a lower ability to spend. The lower ability to spend is a force multiplier that makes itself felt strongly when cutting spending across different domains of the economy. Are there good examples that the platform companies can learn to create a newer batch of consumption classes? Well, as it happens, the Chinese economy, facing some unique challenges, has also found a proliferation of gig workers; almost 200 million Chinese are part of the loosely defined and even loosely protected economic class. A group of companies in China have started piloting social welfare benefits ranging from insurance to housing benefits for the workers associated with them.
In India, the companies operating in this hyper-competitive space need to build a resilient consumption story, for in the medium term, quick delivery and coupons will not be enough to release the trapped animal spirits of the Indian economy. Healthy companies thrive in a happening economy, and India is one such economy.
To ensure the social protection of the gig and platform workers, the companies employing them can seek out solutions that are being created by organisations such as Haqdarshak, they have created an interesting Yojana Card (https://yojanacard.haqdarshak.com/) which promises to inform and access the welfare schemes available to the users. The credit and social protections for the gig workers announced in the budget are also a step in the right direction. Still, the measurements have to be fine-tuned to ensure coverage and expand the ability to consume.