Is the Future Happening?
The Economic Times - September 2000
The marketing of India as an investment destination is moving into high gear again. 'Indian market opportunity ' has been a traditional pillar of our sales pitch, and over the years, we have moved from hype to hope and now, with eight years of post liberalisation market understanding, it's time for review and realism.
When we first started selling India in the early nineties, statistics about the affluence of the consumer base and the current market size were embarrassing. The sales pitches were perforce about 'what can happen", rather than "what it is now", a picture painted about a huge 'middle class' consumer base hungry for products and services that they had been deprived of. The "suppressed demand" theory was soon proved wrong, and the sales pitch moved on to saying that over the years, as incomes grow and consumers evolve, the market will happen. The pitch was "invest in India, not for what it is today, for what it will become tomorrow."
So is the future that we sold and prayed for happening? Can we credibly go on with the same sales pitch? Or is it like annual plan forecasts, where the present is always not so good, but the future is always projected as rosy? Yes the future is definitely happening based on data from ORG-MARG, and from the just released NCAER 1997-98 Market Information Survey Of Households (the only reason they should not be crucified for putting out 1998 data in the end of 2000 is the unquestionably unique value of their reports.)
Consumer India has got more affluent: The NCAER studies give the number of households in different income groups (cut off points have been adjusted for inflation to make comparisons valid). Between 1992-93 and 1997-98 there is a definite decrease in the percentage of lower income households and an increase in the percentage of households in all other income groups. The higher income group has grown more in number than the middle and lower, though being smaller in absolute terms. (See table 1.)
ORG -MARG surveys show that urban households have increased their income by 2.3 to 2.7 times between 1990 vs. 1999.
Shape of Urban India income distribution has changed: The shape of income distribution is perhaps a more interesting metric to monitor to see whether we are at a 'take off point' in consumerism, rather than the 2000$ per cap PPP magic number. Urban consumption has hit take off. If you were to picture table 1, The shape of urban income distribution has changed from the traditional triangle (more households at the bottom than at the top) to the diamond; and even if you project this in a business as usual scenario, by 2006-7 should change shape again to a uniform barrel with a narrow triangular base. The shape of rural distribution is not fundamentally changing, but the triangle is getting a little less bottom heavy. By 2006-7, there will be the first major change in shape, with the lowest income group becoming smaller than the second lowest - the "have a little bit" being much larger than the "have not".
"Low Income" yet consuming : A necessary academic detour on the subject of income classification: most people puzzle over just how any family that earns Rs. 50,000 a year can afford to buy anything at all. The trick is to look at data on what each income class owns or buys. Income, like paternity could be a matter of opinion, but consumption or ownership, like maternity is a certainty. ORG-MARG IRS data shows considerable ownership levels in households with annual income below Rs. 50,000 in urban India . Of this group, 58% have a TV, 10 to 125 have a colour TV, refrigerator, 2 wheeler, 50% a pressure cooker, and 30% LPG gas. The message is that the income number stands for a label of affluence rather than a pure measure of income. It represents a relative truth, as in Rs 80,000 income households earn Rs. 20,000 more than Rs. 60,000, a truth that statisticians call reliable (if you survey again and again using the same methodology you will get the same distributions), rather than an absolute truth.
Ownership levels have increased: Nothing breeds the desire to consumer more than consumption itself. For someone who has not taken the consumption road yet, there is less desire and aspiration to consume. But for someone who is well on the consumption road, there is more consumption that will happen. Urban India has increased ownership of durables quite significantly, at all socio-economic classes, as Table 3 shows. In rural India, the 2 wheeler penetration is quite stunning today, given how quickly it has all happened; further rural India accounts for at least 25 to 30% share of purchase of sophisticated durables like mixers, colour TVs and refrigerators and 15% of all washing machines.
Consumer India is at the point where there is a multiplicative effect of income growth, aspiration to consume and a changed consumption friendly ideology / social discourse - across the income board, and especially in urban India. The pace of change is slow burn, it is a long haul market, but it is now a concrete reality, not a creation of hope and hype.