Live Mint, October 11, 2012

Our right to choice is still impeded by many factors

The right to choice is a very emotive subject because it straddles social, moral and economic spheres. In the context of feminist theory, the right to choice refers to the right of a woman to reproductive freedom. In a democracy, we exercise our right to choose our leaders through an electoral mandate. Choice is indicative of the degree of freedom in a society. The more mature a society, the more choices are available to its people in every sphere. The Consumer Protection Act describes the right to choice as the right to be assured, wherever possible, access to a variety of goods and services at competitive prices.

Though the Indian consumers’ right to choice has exploded since the opening up of the economy 20 years ago, our right to choice is still impeded by many factors:

Presence of cartels and monopolies: The Competition Act, 2002 aims at sustaining competition in market and prohibits abuse of a dominant position and forming anti-competition agreements. The Competition Commission of India imposes penalties for violation of the Act. In June 2012, the Commission imposed a Rs.6,000 crore fine on 11 cement companies who were found guilty of price cartelization. But there are monopolies we suffer which are beyond the ambit of the Commission. The Indian Railways, for instance, which has been a monopoly since Independence. The question of whether railways should be privatized is often debated, especially whenever there is an accident. With India’s varied natural surroundings of mountains, rivers, seas and forests, a train journey could be pleasurable for many Indians, like it is for Europeans. But many choose to fly a budget airline to going by train, even when they are in no hurry. The reason is that trains, even the Rajdhanis and Shatabdis, are ill managed. The coaches are unclean and the food is often prepared under unhygienic conditions. Railway stations, especially in small towns, are appallingly dirty. An Indian railway station is a study in chaos and always has been, as there is no pressure or incentive for a monopolistic seller to do any better. Besides, India accounts for 15% of the world’s train accidents in the last four years. The monopolistic status of the Indian Railways needs to be challenged if we are to get better coaches, safer trains and a comfortable journey.

Too much choice: Ironically, when there is too much choice, the consumer’s right to choose is actually compromised, though intuitively, we would think that there is no such thing as too much choice in a capitalist market. Sheena Iyengar, a professor at Columbia Business School, says in her acclaimed book the Art of Choosing, that too much choice is counterproductive to consumers beyond a certain point, after which, a consumer experiences confusion and is even likely to make choices detrimental to his long-term interests. She establishes this through various studies, the earliest of which was a study which has come to be termed the “jam experiment”. The jam experiment was something Iyengar tried in a high-end store in Menlo Park, California. On one table were six jams and the other 24. Consumers were asked to taste the various flavours on these tables. Researchers found that consumers who tasted fewer jams were more likely to purchase those jams than the other set which tasted 24 jams, got confused and just walked away, probably experiencing negative emotions like dissatisfaction about the whole experience. More is less, she says, i.e. more choice actually is less beneficial to consumers.

One example where I find this theory valid is in the mutual fund market. With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of funds. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India. The industry has also witnessed several mergers and acquisitions. According to the Association of Mutual Funds of India, at the end of January 2003, there were 33 mutual funds with total assets of Rs.1.21 trillion. In March 2008, there were 33 mutual funds floating 956 schemes! Funds may be open-ended or closed-end, growth or income, balanced or money market fund depending on the investor’s objective. An equity fund may invest in small-cap, blue chip, large-cap, medium-cap or growth stocks. Other types include tax-saving funds, index funds, exchange-traded funds or sector-specific funds.

It is impossible for an investor to keep pace with the frenetic pace in which this industry is growing. All of these schemes are being pushed so aggressively, that the average consumer is typically lost about which one will suit his investment needs best.The investor’s right to choose amounts to nothing because he is not really choosing. He is being led to choose by pushy relationship managers who have their own short-term agenda to fulfil and are themselves dealing with variables affecting the volatile stock market which they have no control over. There is enough evidence to show that small investors invest without adequately understanding the risk associated with a scheme. If they see “tax saving” or “insurance” in the name of the scheme, they will put their money in it, only to exit later with losses and regret.

While the choice of investment options is certainly a welcome change from pre-1993, when Indians had only bank deposits or government saving schemes, a certain amount of regulation is required to ensure that the investor’s right to choice doesn’t boomerang on him with an unmanageable array of choices.

(This is an extract from the chapter on right to choice written by the columnist in the “State of the Indian Consumer Report 2012” which was released by the minister of state for consumer affairs on 11 October 2012 in a national conclave organized by CUTS International. It is to be continued in the next instalment of Tough Customer.)

This news can also be viewed at: