India's asset-acquiring habits now have a new parameter— renting. However, that may be unknowingly hurting the country's large manufacturing industry.
To understand the expanse of India's rental economy, formally known as shared economy, consider this: the country's market for rental of furniture is estimated at around $ 800-850 million. Market worth of rentals of electronic appliances is approximated to be $ 500 million and that of bikes at $ 300 million.
The sum total of these markets is roughly at $ 1.5 billion, close to seven per cent of India's total market cap. Added to this, India's used clothes market provides a business opportunity worth approximately $1 billion. The estimated market worth of this industry alone is an indication of the preferences of Indian consumers.
The boom in this industry may also be gauged from the fact that in the last three years, close to 100 online rental service providers have come up that cater to varied demands, from bikes and cars, to books, clothes, toys and even diamond jewellery available for rent, a data analytics company, Tracxn, reported.
According to Ruchi Sharma, co-founder of Pustakkosh Rentals, "The concept of working in the same organization for 25-30 years has long faded as the young professionals are looking for different experiences and hence change jobs. They believe in travelling light with no excess baggage, so it makes sense to rent the products they want for short-term from furniture, cars, bikes, books, designer wear, adventure gear, and others."
She further elaborated, "These market drivers want a fancy lifestyle and do not believe in hoarding or ownership as an option. This is a dynamic young generation with dispensable income on the move, unsure of what city they want to settle in."
Another survey by Tracxn shows that individuals who rent furniture and home appliances are in the age bracket of 22-35 years, have an income of more than Rs. 5 lakh and mostly work in metros or tier-1 cities.
For Satish Asthana, 27, renting came as the most reasonable and hassle-free option when he moved from Gwalior to New Delhi a year ago. He did not buy any household item, but chose to rent instead.
"There is an argument: why should one rent when there is the option of buying and paying EMIs instead. But a simple back-of-the-envelope calculation concludes that short-term rents are much cheaper than bank loan installments. Moreover, there is also the advantage of moving without having to carry a truck-load of items."
However, on the flip-side of the booming shared economy is India's dwindling manufacturing sector, and the former may have a role to play in its crumble.
According to a March 2019 research paper titled "Business Models in the Sharing Economy: Manufacturing Durable Goods in the Presence of Peer-to-Peer Rental Markets" authored by scholars from Carnegie Mellon University and University of California, Berkeley, "From the perspective of original equipment manufacturers (OEMs), it could be hypothesized that peer-to-peer (P2P) rentals may cannibalize sales."
The paper also states, " Peer-to-peer rental markets are part of the general sharing economy phenomenon. In such markets, consumers who own assets (such as cars, bikes, and tools) can not only use them whenever needed, but also monetize ownership by renting them when they are not in use to other consumers willing to pay for temporary access to the assets."
Simply put, items shift from one household to the other as the demand propelling manufacture of new items is diminished.
Consider the example of a household with one double-sized bed. After using the bed for several years, the household decides to get a new bed and sell the old one. A renting firm then buys the old bed, refurbishes it and rents it to a second household. Therefore, only two new beds were manufactured instead of three, and one was rented.
At this point, it is important to note that India's manufacturing sector has seen a severe downfall in the recent past.
Manufacturing growth slumped to a dismal rate of only 0.6 per cent in the first quarter of the current fiscal year (2019-20) from 3.1 per cent in the fourth quarter of 2018-19.
In the first quarter of the previous financial year, manufacturing growth was 12.1 per cent. At the same time, according to a report by PricewaterhouseCoopers, the sharing economy will generate a potential revenue of $335 billion by 2025 globally.
"Though the shared economy is much smaller than the manufacturing sector at the moment, the shift in traditional habits of owning assets is transitioning into short-term acquiring patterns. This can be attributed to one, the average age of India's population and two, migration where youngsters move to tier-1 cities for jobs. However minute, there is a reflection of this on slow demand in the manufacturing sector," said D K Srivastava, chief policy adviser, EY, a consultancy firm.