MAKE IN INDIA, SELL IN MUMBAI

A lot has been written and said about MAKE IN INDIA.  It is a hark back to Mahatma Gandhi’s swadeshi movement.  It’s a very positive thought.  It is better to be a country of producers than a country of importers.

MAKE IN INDIA must necessarily be coupled with SELL IN INDIA and also CAPACITY OF INDIANS TO BUY.  All the making we want to indulge in cannot be exclusively for export, right?  So let’s dwell a bit on SELL IN INDIA (CAPACITY OF INDIANS TO BUY is a bad topic – you touch upon it and you are branded a socialist).  I’ll narrow it down to SELL IN MUMBAI.  This shouldn’t distort the argument in any way, because in India if one can’t sell in Mumbai, where can one sell?

So the discussion shrinks down to SELL IN MUMBAI.  What does it take to sell in Mumbai?  Well…this is what I have been doing the past year or so unconsciously.  Take a walk down your main road – in my case it is the LJ Road in Mahim.  If I saunter down it from Mahim to Shivaji Park, such are the shops and establishments I see…

-       CATEGORY 1 – small business.  Small eateries, haircut saloon, grocery shop, bakery, stationery shop, chaiwala, tailor, dairy, gift shop, optician, photo studio, cyber café and zerox, chicken and egg shop, bicycle repair shop, pet shop, small provision store, bhel-puri shop

-       CATEGORY 2 – big business. Jeweller (सोनार), Bank, electronic appliance shop (Vijay Sales), big restaurant (Midland, Shobha), cinema theatre

I will assume that CATEGORY 2 is doing fine.  After all, it is big business.  We always assumed these guys “mint money”.  So let sleeping dogs lie.  This part of SELL IN MUMBAI is perfectly aligned with MAKE IN INDIA.  You make world class TVs in India, we are here to sell them.

We will focus on CATEGORY 1.  Shops in this category typically operate out of a road facing “gala” which measures approximately 450 square feet.  The cost of such a “gala” is in the region of 1 crore rupees.  Now we will try to build ground up the monthly cost of operating such a shop

Rent or interest cost on 1 crore rupees (Rs.) Assumed 5% of capital cost	40000
Salary – 3 employees, Rs. 15000 each	45000
Electricity	3000
Owner’s profit	50000
20% tax	27600
TOTAL MONTHLY REVENUE	165600
Note that I have not added any other normal business cost – accounts, pest control, maintenance, depreciation etc.

Thus, the small business has to earn a revenue of Rs. 1,65,600/- per month.  If I divide that by 25 days (the number of days the business is open a month), we get Rs. 6624/- as the amount that the business has to earn every day.  Assuming that the business is open for 10 hours a day and each customer “buys” worth Rs. 100/-, we conclude that …

“The small business must consistently have 6.6 customers an hour each buying worth Rs. 100.”

This is simply impossible.  There is no way the hair cutting saloon even with 3 barbers will clock that rate.  Nor the tailor, dairy, chaiwala or any other small business mentioned above.  The small eatery has an outside chance of making the cut, but talk to any small eatery owner (he sits at the counter) and you know he is struggling because his additional costs such as staff, fuel, wastage are not even factored here.

This must necessarily lead us to the conclusion that SELL IN MUMBAI for CATEGORY 1 is a non-starter.  Notice the following about most of the folks running these businesses…

- They own the “gala” and hence simply do not count the Rent or interest cost.  Which means only if you own the place can you keep your head above water.  This puts 99.99% of the population out of the “small enterprise” space

-       You will never find such a small businessmen telling you that business is so good they want their kid to run it after them.  When I used to do IT recruitment at “Tier 3 engineering colleges”, the number of kids whose working parent was a small businessman was overwhelming.  Delve deeper during the interview and you will hear a gut-wrenching story of a sinking business and a frustrated parent who has borrowed to put the kid through a grade 3 engineering school

-       If the small business parent can’t put the kid through professional education, the fond hope is “some job in the Gulf”

The same story repeats shop after shop.  Little wonder that we are faced with grim, glum and often  rude proprietors at small shops (छुट्टा नही है!).  And we expect them to be smiling and exuding a service culture!

Cut to my village, which is a “taluka place”.  It has a market street which is about 300 m in length with approximately 100 shops.  I understand that most of the “galas” are owned by the Gram Panchayat.  The average rent is Rs. 1000/- a month.  I know of a person JM who runs a small eatery – a wada pav/bhajia/tea shop.  It’s a proper shop, not a roadside “thela”.  He is up at 5 AM with great enthusiasm, preparing for the day.  He does roaring business throughout the day.  I am told that on Wednesday which is market day, the pav-walla delivers 1200 pavs to JM.  Whenever I stop at his shop, in the midst of frying and selling, he chats me up.  Always smiling broadly and genuinely, it’s a pleasure to spend 10 minutes at his shop.  We go through the usual pantomime of him refusing to accept payment and me insisting.  JM is happy.   He makes money.  His daughter just completed her tenth standard in a CBSE school at Nijampur, 30 km away.  And JM has earned enough in the last 20 years to buy 1 acre of expensive land and be in the real estate business.  Sure, in general the ordinary resident of Tala has problems which make them turn to Mumbai's wretched life.  But we are here talking only about the small entrepreneur and his ability to do business.

The sad fact about SELL IN MUMBAI is that real estate prices are a butcher.  Everybody knows it.  The government knows it.  Yet it continues.  It is absolutely no surprise that street hawkers are a rage in Mumbai.  Don’t for a moment look at them as law-breaking cheeky illegal vendors.  They are an outcome, not a strategy.  The skewed market forces in Mumbai have brought business on the street.  And that is where it will remain unless those in authority get their heads  out of the sand and realize that MAKE IN INDIA without SELL IN MUMBAI is bollocks.