Whats driving Indian consumerism

Whats driving Indian consumerism India’s baby boomer generation has grown up and unlike their parents who experienced guilt pangs every time they spent money, this generation has no such qualms and believes in living it up. One can attribute this largely to the fact that today’s consuming class has not only grown up in the post liberalization era but also has more choice too, both in terms of job opportunities as well as lifestyle choices.

Better economics (India is the fourth largest economy in terms of Purchasing Power Parity in the world) and the country’s growing eminence as a cheap and par excellence service provider, is seeing to it that global companies flock to India to grab a share of the growing consumer pie. Moreover, as markets in the developed nations are simultaneously getting saturated, India’s 250 million, and growing middle class is a big lure for global behemoths.

India’s ’Demographic’ Dance

India is just the right age and is currently the youngest nation in the world with 65% of its billion plus population under the 35 years age group. What’s more>, a large percentage of this youth is urban. As a result, India’s urban/total population today stands at around 30% and is tipped to touch 37% by 2016, which is comparable to the urban-total/ population levels in East Asia. Further, the median age for India’s youth is also one of the youngest in the world. As against 35 years in USA, 41 years in Japan and 30 years in China, the median age for India’s youth is roughly 24 years.

Whats driving Indian consumerism

According to a study conducted by the Asian Development Bank, the proportion of population in the consuming age (15-54 years) is also likely to increase from 58% in 2006 to over 60% in 2010, while the dependency ratio (share of non-working to working population) is likely to decline from 62% in 2003 to around 55% in 2010. In fact, as a higher percentage of population moves into the consuming class, the growth in consumption expenditure is likely to exceed growth in per capita income (12% y.o.y. for next five years).

Increase in consumption is also a direct fallout of increase in urbanization, as the average per capita urban income is twice the per capita income in rural India (See Table 1.0). Given that the average monthly per capita consumption expenditure for urban India has nearly doubled in the last decade and the fact that urban India accounts for nearly 42% of consumer expenditure (per capita consumption is 90% higher than that of rural India), one can easily attribute the rising consumerism to growth in urbanization.

A stronger rural India with growing capacities to consume is also fueling demand for products and services.Nearly 70% of India’s population lives in villages and rural consumption is directly linked to agricultural income. A supply deficit scenario is driving the firm trend in global cereal prices as stock levels are closed to 20-year low levels. Price trend of other agro commodities are equally or more firm. A combination of firm agro commodity prices, better irrigation and huge government thrust on the agriculture sector has resulted into rising farm income of rural India along with strong return of rural demand. Increased corporate participation and better infrastructure have also resulted in a meaningful impact on farm income and thus rural consumption demand.

Increase in income levels: In the last five years there has been a perceptible increase in the number of households in the middle income and higher income categories. Almost simultaneously, the number of households in the lowest-income bracket has witnessed a sharp fall (See Table 1.1). If that was not all, with rising disposable incomes and lifestyles in transition, the spending pattern of the average Indian is also changing. The top three income categories (See Table 1.2) those earning above Rs. 180,000, those earning between Rs135, 000-180,000 and those earning between Rs. 90, 000-Rs. 135,000 will account for nearly 50% of the total income pie by 2010, a sharp increase from 28% in 2002. And as a recent KSA Technopak survey on spending behaviour of more than 10,000 urban households in India indicates, consumers in the last couple of years have started spending more on lifestyle categories like eating out, movies and entertainment (See Table 1.3).

And the Boom Rolls On…

Whats driving Indian consumerism

To keep pace with the burgeoning demand of the Indian middle class, over 200 malls are expected to come up over the next three years across the country, while over 50 million sq. ft. of retail space is likely to be added in 2007. The booming organized retail sector is in turn attracting top global brands to India. From clothes to accessories, foods & groceries to jewellery, projects have been lined up that are expected to increase organized retail penetration levels to 10% by 2010. Allowing FDI in telecom has already had a positive effect on the economy: teledensity (earlier below 1% for five decades) went up to 10% in just a single decade. With competition hotting up, tariffs came down and introduction of mobile services saw a sharp increase in mobile subscribers. The recent government initiatives of allowing 100% FDI in real estate development and 51% FDI in single brand outlets has already opened up the sector for many global hopefuls and is likely to have powerful impact on the sectors.
And enabling the consumer to spend more and more are the numerous consumer finance schemes that have gained acceptance among the consuming classes. At an individual level, borrowing constraints have reduced substantially with banks/finance companies becoming aggressive lenders. Today, finance is available for almost all kinds of purchases whether large purchases (like a house) or small ones (like a television set). Low interest rates and narrowing down of the gap between deposit and lending rates is also aiding growth in consumerism. The rise in usage patterns of credit cards by the consuming class has also helped to bring a change in spending patterns. In addition, change in other supply dynamics like emergence of multiplexes, resurgence of radio, entry of large corporates in agri space, privatization of airports, increased public private participation in infrastructure projects are also supporting demand driven by domestic consumerism.

Crystal Gazing into the Future

Of course, growing disposable incomes and rising demand will automatically help all sectors of the Indian economy to ultimately ’rise & shine’, but who are the ones on whom immediate impact will be felt? Already the auto industry, consumer durables, telecom and retail banking have benefitted from rising consumerism in India and will continue to be benefitted in the future also. But, organized retail, the entertainment sector and others are now on the verge of boom.

Riding the boom in aspirational products, organized retail has been booming. Retail sales which have been growing at an average annual rate of 7% during 1999-2002 are set to grow at an even faster clip of 8.3% annually during 2003-08, which is even higher than the estimated growth in consumer expenditure. Given that organized retail accounts for only 2% of the total retail market as against developed countries where most of the retail trade is conducted through organized retail outlets, there is enormous scope for organized retail to grow. At current growth rates, it is estimated that organized retail will account for 10% of the total retail pie by 2010. Strong growth for lifestyle related aspirational products/services is also predicted with increased ability & willingness to pay and availability of diverse choices (like multiplexes, low cost air, etc) to the consumer. Some of the categories that are likely to witness higher growth rates are multiplexes, organized retailing, restaurants, specialty electronics, branded jewellery and air travel.

The Rs 300 billion Indian entertainment industry is also set to double in the next five years with all supply dynamics moving in a unidirectional manner. The growing penetration of C&S and a growing advertiser base in the broadcasting space, emerging platforms like Direct to Home (DTH), IPTV and consolidation of cable operators in the media distribution space, easy access to funds and corporatization of the movie production industry, digitization of cinema and emergence of multiplexes has already spawned a boom in entertainment business. Now, with FDI/FII investment of 26% allowed in the broadcasting, the number of channels have increased from a paltry few to over 200 channels and from limited transmission period of six hours to round-the-clock transmission. FDI/FII investment of 49% in cable services and 20% in DTH ventures should bring about more changes in this space.

The FMCG industry estimated at Rs 450 billion is also the next big beneficiary of the boom in consumerism. Thanks to lifestyle changes and globalization, the traditional perception regarding packaged food being either stale or unhygienic is changing. Emergence of modern retail formats and better supply chain management has already made the agri sector an attractive investment opportunity to large conglomerates like Bharti and Reliance, among others. With growing consumerism, FMCG companies, which have finished their capex phase, are now building brands aggressively. Given the consumer’s preference for lifestyle segments – skin care, cosmetics and health care are the sectors to bet on in the FMCG space, while in processed foods – juices, ready-to-eat staples and refined edible oil are the areas likely to generate the highest returns.

Last but not the least,the high cost structures and poor infrastructure that retarded the growth of India’s aviation sector in the past, is fast disappearing. Regulatory changes (abolition of IATT and reduction of excise duty on ATF) and competition have helped drive costs down making air travel more affordable. In fact, reduced fares have increased demand from leisure travelers (a segment that is likely to grow at a faster rate than the business traveler segment that dominated air travel until now) and the sector is likely to grow at a rate of 20% for the next five years.

Whats driving Indian consumerism

Still not convinced of India’s potential? Check this…

  • Organized retail USD 35 billion by 2010 and USD 90 billion by 201
  • Entertainment business Rs 600 billion by 2010
  • Lifestyle related spending Rs 2500 billion by 2010
  • Airline traveler more than 50 million by 2010
  • Consumer space to treble from here by 2015

Need we say more!

One thought on “Whats driving Indian consumerism

  1. Thanks for every other wonderful article. Where else could anyone get that kind of info in such an ideal way of writing? I’ve a prnaietsteon subsequent week, and I’m on the look for such info.

Leave a Reply

Your email address will not be published. Required fields are marked *