Minster of Consumer Affairs etc. & Minister of Commerce & Industry

Protection of Indian Consumers from sub-standard Consumer Durables – A possible approach

It is well known that a large part of total expenses of Indian consumers are in acquiring consumer durables. The money spent on these are increasing and, in many ways, coming in the way of capital formation in their hands and for the country. On the other hand, are they getting value of money spent from the perspective of improvement in the quality of life? If we start looking at beyond immediate gratification, answer would be a resounding ‘no’. Is something that can and should be done to convert this ‘no’ to ‘yes’ or ‘may be’ at least? We examine these aspects in the following paragraphs.

There is however an alternate view that expansion of consumer durable market and more spending by consumers, even by borrowing through credit cards or easy consumer loans, allows economy to expand faster and creates job. However, this job creation through expansion of consumer durable market, specially if the value addition by local factors of production and services at around 25% has limitations and we will not take it into consideration here.

Let us look at how consumers are attracted towards the consumer durable products and how they are led to believe that the products on offer are good value for money and why they should own it to preserve their standing in the society. It is a combination of bombardments with high decibel no holds barred advertising, deceptive discounts, clever use of supply network which will slowly black out substitutes and promotions which will tickle one’s feeling of inferiority if those are not possessed. The product descriptions are actually sketchy and absolutely inadequate in most of the cases.

Customer support in many cases are almost non-existent. We are all aware about global automobile manufacturers who set up shops in India with big promises, sold products and then decided to wind up leaving all consumers to face huge losses.

Regarding marketing, we are aware of the real-life stories of marketing of tea as morning beverage in the early nineteenth century and ‘Dalda’ to replace Ghee and domestically produced vegetable oils like Mustard, groundnut or coconut oil thereafter. These models have now been refined and are being used very effectively for marketing consumer durables.

Consumer durables are, in the first place, to be durable. How durable are those – warranty is mostly for 3 months to 1 year. Moreover, if warranty is to be enforced, the cost of enforcement (preserving all documents, taking the product to the repair centres and taking delivery etc. etc) is much more than the likely benefits in most cases, let alone the chance of unilateral rejection due to ‘improper use’. Moreover, the warranty will give protection only till the end of so called warranty period and one cannot demand information about the nature of repairs carried out or whether the replaced parts are new or reconditioned.

Money flowing from the process keeps everybody from manufacturers, importers, distributors and dealers et al. extremely happy and the voice of the poor customer is ruthlessly suppressed. If any cost related records are available, the annualised returns for most in the process would be upwards of 100% individually (taking about minimum net 20 to 25% mark up and minimum 4 to 5 cycles per year). Are there any checks and balances in the process? The answer again is a big ‘no’. The fact is that even for medical supplies, govt pricing over domestically manufactured products, reportedly accepts 50 to 60% mark up and actual margin extracted by manufacturers and their associates in the chain are 100 to 200% depending on which outlet makes it available.

The problem areas are therefore inappropriate sales starting from deceitful marketing and grossly inadequate product description, most adverse terms of sale through small prints, almost no assurance about product quality and no assurance about after sales services at reasonable cost. These are general position and in a competitive market to increase their returns, every supplier is more or less doing the same thing, only degree varies.

The latest straw on the back of proverbial camel is imports (illegal?) of Chinese goods which has flooded the market. With no control whatsoever and with active support from Indian sales and logistics support providers, almost all consumer durables bought at relatively cheaper price is proving useless in a very short time giving the consumers their nightmares.
The problem, if identified adequately in above paragraphs, needs a solution. There is possibly one solution available which would be fair to all. My suggestion is as under:

Let us create a regime under which for each of the imported consumer durables, let there be a declaration of its expected life (in years) under normal usage by the manufacturer or importer and let this be on the packing as well. Let there be a similar requirement form all Indian manufacturers but this can have late start by about upto 2 years and in stages (depending on turnover).

The manufacturer or importer, as the case may be, will have to ensure service at a reasonable cost for up to twice the declared useful life. They will have to provide service outlets with adequate infrastructure in all states where their product is sold. The concept of reasonable cost should be linked to actual cost of spares (not at inter-company inflated cost) plus about 25% mark-up plus actual service charge (at reasonable rate0. Current level of charges should be on display through service centre notice board and website.

Moreover, 20% of the value of products sold should be kept by the manufacturer or importer in a Govt specified Customer Protection Fund till the double of useful life period is over. The manufacturer/importer will be charged for any instance of unavailability of support. Moreover, manufacturer/importer will also be blacklisted in case of any gross violation of service obligation. Such action should also follow in case products do not conform to standards described by the manufacturer or importer

There should be complete documentation of all sales and all post sale service provided thereafter. There could be auditor certificate on quality of documentation and based on this certificate, withdrawal of funds kept in Customer Protection Fund should be allowed.

If we pass a law to this effect, it should ensure that the problem is taken care of completely. This will also ensure that not only cheap imports of dubious qualities are taken care of but will provide due protection to the consumers.

The cost of administration of the scheme for the Government can then come from a small cut on return of the funds in the Customer Protection Fund, rest can go to the depositor of the funds.

There would be some additional action that will be need from manufacturer of consumer durables to comply with this requirement and this will involve some additional costs. However, this would be needed to protect customers and should be considered very fair. In any case, appropriate additional requirements are already there for medicines, eatables, agricultural etc. produces. Hence, the proposed requirements should not be contested on grounds of discriminatory practices.

The approach suggested above is not complicated and can be implemented with reasonably simple IT infrastructure and properly authorised lean administration structure. The main benefits from this will be as under:
(a) Indian consumers will be protected from sale of substandard products or from fly by night operators– they will have certainty regarding the utility of the items they buy and availability of service at a reasonable cost,
(b) Prices of similar products will be clearly understood
(c) Competition in the market, if any, will be between products which are of minimum acceptable standards
(d) There will be a laid down process for all to follow and get redressal, if required.

May I request for support from the consumers, consumer support activists and most importantly, elected representatives to take this forward for making our markets really fair for the consumers.