Louis Vuitton, Bvlgari, Christian Dior and their ilk have discovered the Indian rich and everyone is exulting over the coming of age of the Indian consumer. But long before these trendy luxury stores made their fashionable and perfumed entries into India, the Indian middle class consumer made a significant if little-noticed transition up the value chain.
It was long believed that Indians equated value with "cheap" or "free". But now that competition has given them the choice, Indian consumers have learnt to weigh value as a combination of price and service. Few companies have learnt this truth in quick time than public sector service providers.
State-owned domestic carrier Indian Airlines (now called Air India after the merger with the eponymous flag carrier) was among the first to feel the pinch when private competitors began eating into market share.
It could be argued that the government airline, with its inherent decision-making rigidities, had to face competition from a private sector that has the flexibility to slash prices. (Of course, such price competition would have been exceptional in pre-liberalisation times with the Monopolies & Restrictive Trade Practices Commission playing its time-honoured role as competition-buster.)
The fact is that the threat to Indian Airlines's dominance began long before the days of cheap fares. Few will remember that in the initial days of the open skies policy, private carriers were not allowed to charge consumers less than Indian Airlines on any route (and several went bankrupt as a result).
Yet, consumers were willing to pay for the demonstrably superior service of those private competitors that learnt to manage their costs.
Today, the state-owned airline's market share is less than a fifth and it has ceased to be a significant competitor. The real battle for market share is now being fought between private players Jet Airways and upstart newcomer Kingfisher Airlines. The two, ironically, are also competing for official patronage for their plans to start international operations.
Likewise, state-owned telecom companies BSNL and MTNL may dominate the fixed-line market. But in the larger, faster-growing mobile telecom services the combined share of these behemoths is about a third.
This performance is despite favourable treatment from the government. First, part of private competitors' earnings is impounded for rural connectivity. Second, the government has preferentially assigned the public utilities much-coveted spectrum, the radio frequency that enables mobile communications, despite a long private