Consumer driven economy - Perils and dangers

A consumer driven economy rests on consumer confidence, purchase behavior, availability and pricing.

If you look at the right example of consumer driven economy- the US Economy, you will realize that there is great level of confidence amongst the consumers, manufacturers, retailers and hyper markets! A conscientious consumer spends readily only when confident of a secure tomorrow, else tightens the strings bracing against wants. With a secure tomorrow (though it is provided by the credit companies in many cases) there is little hesitation to spend what you have! But what will happen when the income does not increase proportionately to increasing wants?

When there are cash flow jitters (read too many credit card payment defaulters), even the developed economies are shaken up. And that leads to fear among buyers to decide whether to buy or not? The consumer is controlling a consumer driven economy unlike market driven economies which are controlled by producers, service providers, and manufacturers. Here we could also differentiate between ‘Market pull’ mechanisms and ‘brand push’ strategies. Earlier the mechanism was to study the market and respond accordingly. But this has changed in developed countries where the approach is to ‘sense and respond’ which is nothing but bombarding the consumers with plethora of products’ information and study their behavior and respond accordingly. Hence though it is called consumer-driven it is a brand push strategy hidden so that it is not visible. The techniques could be simply ‘sales’ offer over the counters, collecting data of consumers to ascertain interests and wants regularly, With the excessive penetration of internet, mobile communication these techniques are very easily practiced.

So, what happens when the consumer drives an economy? Clearly the economy grows but so do debts or deficit budgeting. The needs are replaced by wants! This leads to growth of credit lending companies, schemes to create demands, financial tools to enable speedy recoveries and competition of banks to make available funds. Now this becomes a balloon that can expand or burst too if not properly regulated…..

Whose gas is it anyway?

THE bitter feud between India’s Ambani brothers, Mukesh and Anil, has reached a new low...

Earlier this month one of Anil’s companies, Reliance Natural Resources, placed advertisements on the front pages of Indian newspapers, accusing the government of siding with his older brother over Mukesh’s attempts to raise the price of gas from a big field. The government’s actions could lead to “super normal profits” for Mukesh’s Reliance Industries, the ads claimed, and a 50% rise in power bills. Reliance Industries hit back, describing Anil’s media campaign as “malicious, mischievous, baseless and ill-informed”.

The row centres on the pricing of natural gas from one of India’s biggest fields, in the Krishna Godavari basin in the Bay of Bengal. In 2005 the brothers agreed that Reliance Industries, which controls the field, would sell gas from its D-6 lease (short for Dhirubhai-6, after the Ambanis’ late father) to Reliance Natural Resources for 17 years at $2.34 per million British thermal units. In 2007 the government stepped in, invoking its right under the lease to vet sales contracts, raising the price to $4.20.

The oil minister, Murli Deora, meanwhile, has said that the gas belongs to neither brother but to India. ... but Murli  Deora , it has been reported is very close to the Ambani family for many years. And what I cannot understand is ...only management of companies have been sorted and not the profits of the group! In fact, the Reliance group profits are equally shared by the Ambani brothers...some earmarked for the sisters too! Whose gas is it anyway? Why can't the government decide? Why should Anil & Mukesh fight over natural resources that do not belong to them but only leased to one of them....