The economy is getting back to business in bits and pieces, but very few are confident of demand returning to normal this year. In a bad economy, everybody wants to sell more but wants to buy less.

Our government has taken the supply-side route to rescue the economy. It is trying to protect the producers by lowering their immediate financial obligations and making it easier for them to borrow more. The hope is that saving production will indirectly and eventually revive demand. Experts in government have said that propping up demand would be wasteful because people would save the extra cash instead of spending it.

So, it is left to the businesses to revive demand by themselves and restore their revenues. Indian enterprises must become atmanirbhar as far as demand creation is concerned.

However, getting businesses and consumers to spend freely in times of Covid is difficult. The present is shaky and the future is uncertain. Demand was already low when Covid struck, and the lockdowns have pulled the plank from under it. Consecutive months of zero or partial revenues for businesses and income losses for households, have constrained the willingness and ability to spend. Most of the forecasts for the Indian economy predict substantial shrinkage of GDP in 2020. The unpredictable administrative measures to contain Covid are not helping confidence either.

Business demand has become vulnerable as enterprises are conserving cash. Banks are reluctant to lend to anyone except the highest ranked borrowers, who are very few. Large companies, which are also major customers of MSMEs, have gone into their shell as their revenues and profits have tanked.

According to the RBI, in the quarter ending March 2020, sales and net profits of the 1,640 listed private non-financial companies declined 10.2 per cent and 65.4 per cent, respectively, despite corporate tax rate reductions. The April-June quarter could be worse.

To revive business demand, it will take more than just cash. The Covid situation is getting worse and fear of more disruptions is keeping businesses cautious. However, businesses cannot wait for Covid to go away or for the government to provide certainty. Business must go on.

Reviving demand requires business to overcome their self-preservation reflex. They need to spend to create demand. Allocating cash for innovation, advertising and marketing is critical in a bad market. Products and deals that help people tide over their difficulties would find ready demand, but only temporarily. The key is to excite people with products that can do new things or with methods that fundamentally change the customer experience.

One may recall that the digital revolution really came about in the midst of the global financial crisis. Apple was able to launch an extremely expensive iPhone while people were trying to survive a sharp recession.

Creative pricing and selling models can help improve the willingness and ability of the customers to spend. The impairment of buying capacity for some and the desire for cash preservation among others, makes it necessary to change the value proposition. Businesses need to go beyond discounting and financing purchases. Getting customers to commit to persistent purchases can be achieved by selling subscriptions instead of ownership. Lowering the cost of customers’ commitment to a product by offering it as a service can get more people to try and adopt the product.

Home is where the demand is now. The lockdowns, partial re-openings and fear of contagion have confined much of the population at home. Work, commerce, education, entertainment, sports, fashion, food — everything is entirely or partially concentrated to homes. Businesses need to pivot to the home market to stimulate demand.

There is a huge unmet demand for gadgets and DIY equipment for work, entertainment, health, hobbies and household chores. Home improvement is a big priority as video conferencing is exposing private spaces to the public gaze. People are eating more frequently and are seeking boosters for their immunity as well as moods. Personal vehicles are back as essentials as shared transport is too risky if available at all. There is demand to be found at home for all kinds of things.

Covid is here to stay for now and life and livelihood have to go on despite it. Reviving demand depends on how everybody can work around Covid.

sanjaykirloskar

The writer is President, All India Management Association, and Chairman, Kirloskar Brothers

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