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Why do I disagree with the narratives around India’s B2C potential for tech businesses - land of DAU

I am sure, at this point, most of you have already come across Nitin Kamath’s viral Tweet on India’s B2C market. After that, all the folks sitting in their offices/home - started sharing their versions of the same. The shocking part, for me, was the absence of a single counter-narrative. I felt - everyone was waiting for that tweet to cry out loud - I told you so.


In plain language - I disagree with this narrative even though I am a fan of their work and have tons of respect.


Before we go further, allow me to share a small piece of Henery Hazlitt's POV published in the Wall Street Journal in the early nineties.

In any economics proposal, we must trace not merely the immediate results but the results in the long run, not merely the primary consequences but the secondary consequences, and not merely the effect on some special group but the effect on everyone. It follows that it is foolish and misleading to concentrate our attention merely on some special points - to examine, for example, merely what happens in one industry without considering what happens in all. But it is precisely from the persistent and lazy habit of thinking only of some particular industry or process in isolation that the major fallacies of economics stem

Well, this is a good start! :) Now what? Frankly, I don’t understand the whole argument about India's B2C market size for tech businesses, India is the farmland of DAU/MAU, if you look at the ARUP, it will tell you a different story. In plain language, What do you mean by that? Isn’t it, historically, tech businesses have been built to keep the future growth potential of the market? Isn’t Jeff Bezos starting Amazon based on the massive growth opportunity of the Internet rather than the number of available internet users in 1994? Aren’t we all starting a business to keep a 10 years time frame - market size, economic development, Increase in PP etc. - in our mind?

Let’s understand this: How do we know whether a tech-business opportunity exists for a market or not?

  1. Internet users (N)

  2. Money spent offline on the specific activity (R)

If a consumer is performing an activity offline, and he/she is also an internet user, the market opportunity = Σ(N*R). And money is being spent offline on various activities, of course in your proportion it is smaller - but that doesn't mean they don't. And therefore, it is not the problem of market size - it is a problem of the operator's inability to build a sustainable tech business. I know these are strong words, but boss, I know, folks who have built large sustainable businesses in a B2C setup for the same consumer base. And I have explained this in the 2nd part of this essay, below.




According to this tweet: except for 30 million customers rest of the population's GDP is below $600, so? In 2006-2007, India’s average GDP per Capita was around $800. The first set of tech companies -Flipkart, Myntra, Zomato, JustDial etc. - were founded around the time. Tell me one thing, how many LPs or Hedge funds invest in VCs and Sovereign Funds considering the current market size? Isn’t it, that we all are bullish on India’s future? How many of you, if you are an investor, invest money in considering, only, the current market size? You ask about the Market’s CAGR right, why? Because we are optimistic about future growth and progress either based on our own or other nations. Let’s say, if we execute well as a nation, we keep the similar growth and increased our GDP per capita by 3 times, in the next 10 years. The same 130 Cr. customers whose GDP per capita is below $600, and today are not a part of the economy, will be similar to present India’s average per capita of $2000. Now if you are going to argue - we should wait till these folks will achieve this number, well progress is not inevitable, it needs deliberate efforts from communities. That's how we have made progress, Historically.


According to this narrative billions of dollars, were invested keeping 40 Cr consumers in mind is a waste. For example, billions of dollars of capital infusion in the vernacular contents - investors include Twitter and Snapchat - are a waste of money? Because the advertisement is going to be their main revenue source from 40 Cr+. users. None of the companies is going to spend their marketing dollars if these customers will have no Purchasing Power in the future. India’s largest fulfilment Center (FC) - 20 lakh sq feet in Haringhat, West Bengal by Flipkart to fulfil the need of consumers whose current monthly income is below 12000 is another example. Let me also announce it loud, if you are thinking there would be no such FC, you are mistaken - we have not even scratched the surface, forget about the growth stagnation.

JFYI: Amazon invested $180 billion on retail infrastructure till 2020 only in the USA alone. And In 2022, they have committed another $80 billion. Let’s say, if they are investing 50% in retail, it would be $40 billion after $180 billion, just on infrastructure. I have explained this why it is necessary to invest, below.


Let’s have a look at this graph and tell me you are not excited and feel India’s next 40 Cr consumers’ GDP per capital will not cross $2000, if we execute well as a nation? If your answer is still no, we are not friends anymore. LOL! (Anyway, I don’t have many friends)




Here are a few key points:

  • In 1950 US GDP per capita was ~$2000, and most of the industries - railroads, mining, Radio corporations etc. were controlled by the private body. The private body used to be the angel to pull from deep market crashes. Either in 1929 or 1987 - both times private bodies rescued the market. There was no sign of the technology, and GDP per capita per year growth never crossed 4% after 1960.

  • In 2006, China crossed $2000 per capita GDP. And after 2007, it has its “Home Run: Maximum outcome” each year. All the other aspects - Policies, the population's desire to become a wealthy nation, long experience as a nation etc. - that helped Chain leapfrog the growth, technology was one of the primary contributors.

  • India crossed $2000 per capita GDP in 2019. Of course, we didn’t have a “Home Run” after that due to COVID-19. But we are in a better position. Policies are well aligned to build infrastructures that can contribute heavily to economic growth, Capita allocators are keeping a keen eye on the Indian economy, and a large Indian population has an aspiration to become a wealthy nation. On this aspect, we should learn from Government - policies are spot on, long-term thinking -25 years - focused on the next 40 Cr. consumers, and using existing resources to create a net +ve economy. I have written an essay on this in April-22. Based on my understanding of the budget for 2022.


I think the Indian market is underfunded - Equity and Debt. If the whole purpose of using tech is to improve the existing system/process and create more production using existing resources - my argument holds its ground - meanwhile, this is economy 1-0-1.


If you calculate the current EBITDA of different markets and compare that with the capital inflow, till today - you will realise we need more capital. Of course, this does not apply to all industries. The industries that I am talking about contribute real economic value to India’s growth - the 40 Cr. consumer base that is being questioned as a potential B2C market for tech businesses. For example Agritech, Dairy farming, Regional D2C brands, Retail, Supply Chain etc. 99% of the B2C consumers from this market neither file ITR, nor have a Demat account, and their monthly salary is ~12,000 - I agree. But this is also true, in 2010 their monthly incomes were less than ~4000.


Now the 40 Cr (400 million) next consumers who are not part of the economy, right now, is a trillion-dollar opportunity (You can combine the market size of the above industries). Let’s say 15% net margin, even though the net margin is higher for this market, that makes an EBITDA business of $150 billion. These markets are still in their nascent stages which means it has high leverage, and taking a normal proxy demand, necessary capital would be 5 to 6 times of the EBITDA, let’s say 5 times - the genuine need for capital to flourish 40 Cr. (400 million) consumers from the above industries would be $750 billion. The current capital deployment for this market may be in the range of $30 to $40 billion - this is ~5% of genuine need. Now there might be some ups and downs from this number, but if you apply any financial formula, you will find the market is super underfunded. And this is the only reality. Of course, I can’t talk about other markets. Let me give you a detailed explanation of Retail.


But before that, let’s try to find out the root cause of this narrative - this is a try, I could be wrong! I love the S curve to understand any economics/progress related problems.

I have drawn an S curve, which you can find below, representing Money on the X-axis and Utility on the Y-axis. After all, the whole argument is around money and utility only. In non-economics terms, money and utility can’t be negative hence I have chosen low to High. I have also divided the money and utility real-state into three parts - 1, 2, and 3. Technically, 3 is the state where no amount of money can add any additional utilities to our life.


Fundamentally, humanity started with low money and low utility. Tribes progress formed localities and countries. And deliberate efforts and environmental conditions lead to uneven progress. And hence at any stage of humanity's progress - the earth’s population can be divided into three parts - 1, 2, and 3. As the 3 has no visibility of the utilities and money of 1 and 2 - except the part that they read and watch in documentaries. They create all these fallacies - India’s B2C market, India is farmland of DAU, India market is equivalent to the number of credit card holders etc. All these narratives are by the folks at 3. Here you can argue - why does LPs are bullish on the Indian market? Because they have seen the progress cycle, they have multiplied their money in a similar market. And believe in progress.


Tell me if there is any other School of thought on the Economics of an Industry/organization/country apart from: “The net positive economic value is nothing but the sum of the reduction in resources and marginal/exponential improvement in production due to the new method/process/technology etc.

And your decision of investing or not depends on only one factor: “Is the net positive economy higher than the investment made to bring/implement the new method/process/technology.”


I would love to hear if there is any other school of thought on economics. And if not - the narrative of India’s growth stagnation and B2C potential is false. (Please forgive me, I couldn’t write this down much simpler. You can click on this image where I wrote this - the first time.)


Let’s get back to the S-curve. The utilities and money of 1 and 2 might not be visible, but there has been incredible growth. In my village: the wealth of individual families has grown a minimum of 4X. I have seen my Dad investing/saving money through LIC and other available services for the past 12 years. And 12 years back, his monthly income was not more than 6000. And this is the root cause of this fallacy - the money and utilities of 1 and 2 are invisible for 3. And you can choose to ignore the whole narrative.




From this S-curve, we can also extract the aspect of need and demand.

Let’s quickly get back to Utilities, again - obviously, these consumers group has different Utilities, hence preferences, and hence Needs. And till the time - we can’t understand the Needs, the possibility of a sustainable business for this market is impossible. I used the word Needs not Demand. The difference is later can be manufactured by incentives, and the former can't -needs are real. In the equilibrium stage - needs are aligned with purchasing power.

Now, we can apply this framework to retail.


The Cab-Table’s recent article on “Social Commerce” was super interesting. The story highlighted the critical aspect of unit economics - that I have been crying out loud from day-1. Who cares (LOL!). When I was doing my internal research to understand what went wrong with social commerce - I realised I would have committed the same mistake if we had money, LOL!


So, there were a couple of problems:

  1. Feature based mindset in a complicated market such as retail that demands super-high detailing

  2. Confusion between Needs and Demand.



The best thing that we can do is to understand the viability of these business models from an economics POV.


Let’s say the whole argument of these companies was to facilitate an offline shopping experience in an online environment. Video commerce: Influencers were giving a vibe of offline shopkeepers, removing the friction of reading descriptions before making a purchase decision, Live Video Commerce: Live Offline shopping experience through mobile phone, Group Shopping: A Bazar like shopping experience, shopping together, Reselling Apps: trust and lower CAC, frankly, from end-consumer POV reseller model was always a bad deal.


From the above arguments, sure social commerce improves the one aspect of retail. But Boss retail is not only about how seamlessly or efficiently you are bringing customers on your platform - this is just one aspect. Just because you are selling products through the internet - the entire business can’t become easy or efficient. Retail is a complex business - and sustainability comes from optimizing every single component of the entire value chain. So, technically selling products online is more difficult compared to offline. The article is a must-read.

I planned to write on this topic only, but then the thread changed everything - in the coming week, I shall write about this.


Let’s quickly, get back to the need-based retail market.




We are going to explain this with the available data. India has 600 million active internet users. 40% of the Indians have an average monthly income of ~12,000. Unlike you, they don’t have expenses such as - rent, travel, luxuries etc. Because Morse's hierarchy of needs applied to every living human being. This means unlike Amazon’s choice of starting an online retail business with books is not going to work for these customers. So, ideally, grocery is the suitable category for retail - if you would like to improve the current method/process with technology.




Now we know their largest expense is on groceries, not food, and they spent - based on our historical data - 2500 to 3500 monthly. Let’s say they only spent INR 2500 monthly - this makes a need-based monthly market size of 100,000 Cr. And hence yearly market size = 12,00,000 Cr. ($160 billion). This is need-based market size, not demand. Similarly, you can define a need-based market size for different markets. Since the market is in the nascent stage, in the next 5 to 10 years, it would be half-trillion dollars. The only way, you can call this narrative false - if you are thinking this customer base is not eating.


Boos, it was never a market size problem - it was, can you build a process (business model) that could be economically superior compared to the currently available process (business model). In that case, only, any investment is going to make sense. According to multivariable calculus: There could be a number of solutions to a problem. And our experience on the ground for the past 8 months has proved - using existing resources, and technology, we can build an efficient process to satisfy the need-based market size of the 40 Cr. (400 million) consumers. In short, I can tell you it is not at all easy. It is super hard but not impossible.


Look if you are building or thinking to build a business for the consumer base away from 10 Cr, you must ignore this noise. They lack the understanding of the consumer base away, 100 million. You should probably talk to the founders of thousands of companies that have built and building sustainable businesses for this market. If you want to follow, you should follow Shashank, Kirti, Neetu, Thirukumaran, and the likes of others. But I have bad news for you, these folks don’t write Twitter threads, they avoid attending events, and they don’t explain real insights in complex words and sentences. They will give you the real ground insights in the simplest language.


I can bet - based on my experience with History - the market shall reward you for being founders, investors, and any other stakeholders for this market.


Chalte he, aaj ke liye itna hi, THIK Hai! (That’s it for today, Okay?)


I Published this essay on 22nd May 2022 on LinkedIn.

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