<p>Every overseas visitor to India, over the course of the past two decades, that we have had the opportunity to engage with, has unfailingly asked one vital question – ‘how large is the middle-class.’ This is a valid probe, as the market’s long-term potential is linked conspicuously to the size of this critical demographic segment. The answer, sadly, is not that simple. Estimates vary, based on definitions, but one fact is explicitly clear – the middle-class, however defined, is rapidly growing.</p><p>During a briefing session on our BCPI survey findings, Vikrant Gandhi, of ICICI Home Finance correctly observed that the volume of home mortgages expected to be hawked over the coming decade, would be much greater than the aggregate of what was sold in the last three. This is because more families are now in an income bracket where they can afford to buy a home. The growth is near exponential. The other interesting fact, peculiar to India when compared to China, is that the basic premise of the economy is consumption. Private consumption accounts for nearly two-thirds of annual output. This, unlike in many western countries, is not debt driven and consequently sustainable.</p><p>Internet penetration rates at about 50% of the population have helped in creating an awareness of products and, more significantly, e-commerce platforms have ensured delivery. All of this generated a rate of growth in consumption, which will quicken over the coming decade. Aided by better internet-based services, Indian households will buy more and replace often, leading to a rise in consumption levels never seen before. The government, too, seems to have acknowledged this – offering incentives for local production and clamping down slowly, but quite obviously, on imports. By 2030, the estimated annual sales of 5.5 million cars, 26 million two wheelers and USD 380 billion in FMCG, would be no marginal opportunity.</p><p>With reasonable assumptions on economic growth and that we sail a steady ship, without extreme shocks – either economic, social or political – India’s economy should touch USD 6-7 trillion by 2031-2032. That is not too far away and businesses need to get their plans sorted to tap this remarkable opportunity. By 2035, India’s consuming classes will comprise of 120 million ‘households’ with an annual income exceeding USD 30,000. Of this about 40 million households will have an average income exceeding USD 50,000 per annum. This segment would constitute the fat-belly of the market-place. But the icing on the cake – the Gucci and Versace types – would comprise of 10 million households with a per-capita income exceeding USD 100,000. With purchasing power parity considerations, where costs in India are a fourth of those in America, that would constitute a serious amount of buying power.</p><p>Multinational organisations have traditionally worked on a hub and spoke strategy, where manufacturing is concentrated in one country for distribution in several adjacent markets. China has been its greatest beneficiary, with high levels of productivity, robust infrastructure and cheap labour. Going forward, however, this may not work. Amid rising nationalism and governments incentivising local production, through subsidies and incentives, ‘produce locally to sell locally’ may be the new mantra. With India’s growing middle classes, local production and distribution could actually even make business sense.</p>
<p>Every overseas visitor to India, over the course of the past two decades, that we have had the opportunity to engage with, has unfailingly asked one vital question – ‘how large is the middle-class.’ This is a valid probe, as the market’s long-term potential is linked conspicuously to the size of this critical demographic segment. The answer, sadly, is not that simple. Estimates vary, based on definitions, but one fact is explicitly clear – the middle-class, however defined, is rapidly growing.</p><p>During a briefing session on our BCPI survey findings, Vikrant Gandhi, of ICICI Home Finance correctly observed that the volume of home mortgages expected to be hawked over the coming decade, would be much greater than the aggregate of what was sold in the last three. This is because more families are now in an income bracket where they can afford to buy a home. The growth is near exponential. The other interesting fact, peculiar to India when compared to China, is that the basic premise of the economy is consumption. Private consumption accounts for nearly two-thirds of annual output. This, unlike in many western countries, is not debt driven and consequently sustainable.</p><p>Internet penetration rates at about 50% of the population have helped in creating an awareness of products and, more significantly, e-commerce platforms have ensured delivery. All of this generated a rate of growth in consumption, which will quicken over the coming decade. Aided by better internet-based services, Indian households will buy more and replace often, leading to a rise in consumption levels never seen before. The government, too, seems to have acknowledged this – offering incentives for local production and clamping down slowly, but quite obviously, on imports. By 2030, the estimated annual sales of 5.5 million cars, 26 million two wheelers and USD 380 billion in FMCG, would be no marginal opportunity.</p><p>With reasonable assumptions on economic growth and that we sail a steady ship, without extreme shocks – either economic, social or political – India’s economy should touch USD 6-7 trillion by 2031-2032. That is not too far away and businesses need to get their plans sorted to tap this remarkable opportunity. By 2035, India’s consuming classes will comprise of 120 million ‘households’ with an annual income exceeding USD 30,000. Of this about 40 million households will have an average income exceeding USD 50,000 per annum. This segment would constitute the fat-belly of the market-place. But the icing on the cake – the Gucci and Versace types – would comprise of 10 million households with a per-capita income exceeding USD 100,000. With purchasing power parity considerations, where costs in India are a fourth of those in America, that would constitute a serious amount of buying power.</p><p>Multinational organisations have traditionally worked on a hub and spoke strategy, where manufacturing is concentrated in one country for distribution in several adjacent markets. China has been its greatest beneficiary, with high levels of productivity, robust infrastructure and cheap labour. Going forward, however, this may not work. Amid rising nationalism and governments incentivising local production, through subsidies and incentives, ‘produce locally to sell locally’ may be the new mantra. With India’s growing middle classes, local production and distribution could actually even make business sense.</p>
