Sunday, August 21, 2016

How hyperlocal services startups are increasing/causing inflation

Have you ever used Urbanclap, Quikr or other hyperlocal startups to book a service like plumber, electrician, beautician, painter etc? If so, you may have unwittingly contributed to the growth of inflation for now and later. While it is good to have more visible choice online, this does not necessarily help the end consumer if there is no increase in supply. The reasons are manifold

  • Migration from informal sector to 'organized sector': With the activity getting recorded, there is only a matter of time before service tax/GST and TDS(on professional services deducted by the platform from payments made to the service provider) kicks in. And at ~19% and 10% respectively, you are already looking at a 30% inflation.
  • Premium for language skills/soft skills/training: While skilling of these workers is a good thing, it often results in expensive rates even for people who do not need this level of sophistication.  
  • Cross subsidization via standard ratecards: For example, an expat in Malabar hill and a housewife in the suburbs need not pay the same rate but they often end up doing so. 
  • Lack of fresh supply: When talent becomes more mobile and goes online, the rates would go up since the demand does not reduce
  • GMV Inflation: To increase GMV, these startups sometimes do a 'Lenskart' with high sticker prices and daily sales. This has the risk of increasing offline prices too for those not savvy enough to use the codes.

Other factors which seemingly affect inflation but which may not in reality
  • Platform fee/commission: The 10%-30% cut taken by the platform(in steady state) merely replaces the fee taken by the neighborhood shopkeeper. 
To sum up, an end-end integrated business model like one suggested by Sramana Mitra in her book India Vision 2020 might allow such services at affordable prices. But I am not holding my breath for this, since anything which might provoke deflation even if win-win might not be implemented fast

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