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India's growing urge to splurge
By Indrajit Basu
KOLKATA -
While the rest of Asia takes its consumer cues from the
jostling bargain-hunters of Hong Kong and Shanghai, or
the stylish shoppers of Tokyo's Ginza, the fact is that
India, unnoticed, may well be undergoing the region's
biggest and longest lasting consumer boom.
There are 300 million middle-income earners in
India, bringing home US$2,000 to $4,000 a year - much
higher in purchasing power parity than that figure would
indicate. Economists say that annual income in Asia of
about $3,000 is the takeoff point for car purchases.
India's middle class, already bigger than the entire
population of the United States, is expected to grow to
445 million by 2006. That has inspired Knight Frank
India to rank India fifth in the list of 30 emerging
retail markets globally, predicting 20 percent growth
for the segment by 2010.
Take for instance
Rajesh Julka, a 34-year-old year resident of Kolkata,
which doesn't rattle the Richter scale of richest cities
of India, let alone in Asia. Nonetheless, he is a study
in contrasts between the old India and the new one. In
1996, he shelved his plans to replace his 10-year-old
television because he couldn't afford a new one. His
father had just retired and his mother was struggling to
run a beauty parlor from one of the rooms in their
congested ground-floor apartment. Julka himself was
unemployed, in the midst of trying to establish a
sari-making operation.
How
Indians Spend
(KSA Technopak survey)
Percentage of annual
earnings
spent
|
1999 |
2002 |
| Groceries |
46.2 |
42.1 |
| Personal
care |
6.2 |
8.8 |
| Appliances/durables |
8.6 |
5 |
| Clothes/footware/furnishing |
7.8 |
10.5 |
| Books/music |
5 |
6.7 |
| Movies/entertainment |
2.9 |
5.8 |
| Vacation/eating out |
10.8 |
15.6 |
| Savings and
investments |
12.1 |
5.2 |
But the eight
years since have turned Julka into an Indian yuppie,
married with a child, living in a $100,000 condominium
and replacing his cellphone every three months. He has
owned three new cars in the past four years, and
recently bought a $2,500 notebook PC during his end-July
holiday to Singapore. "I can't resist buying newer
models of electronic goodies," he says. And, by the way,
he has three televisions.
Julka is thus one of
what Knight Frank India calls the "brand-conscious urban
population", which "forms the largest segment of demand
for the majority of retailers. This segment has grown
3.22 percent a year over the past decade." Knight Frank
says that the organized segment is expected to grow from
a mere 2 percent to 20 percent by the end of the decade.
This is not surprising, considering that the organized
retail sector is growing at 8.5 percent per annum.
Much of the boom in consumer spending flows from
the then-ruling Congress (I) party's 1991 decision under
then premier P V Narasimha Rao and finance minister
Manmohan Singh to adopt reforms and economic
liberalization that shifted the country away from a
state-directed, mostly closed one to a more
market-driven economic system open to global
competition, and probably did away forever with
condescending references to the "Hindu rate of growth".
But the driver behind the consumption explosion,
say analysts, is a combination of factors like falling
or stagnant prices, a profusion of new products, booming
credit finance, the sudden reduction of traditional
savings options and a sharp increase in the services
sector - IT, back office, finance, insurance and retail.
For Arvind Singhal, the chairman of the
Delhi-based KSA Technopak, India's largest management
consultancy, specializing in the consumer product
segment, "boom" would be a mild word to use for
describing the consumer revolution that is taking place
in India. "There's actually a tectonic shift under way
in the demography of spending," Singhal says.
According to KSA's latest consumer outlook
survey, which is based on 10,000 four-member families
with slightly higher earnings than average, urban
consumers in 20 Indian cities spent over $30 billion on
themselves in 2002, a 12 percent year-on-year increase.
Unlike most of his peers in equities analysis, K
C Reddy of Thames River Capital doesn't follow typical
numbers like economic growth, corporate profit growth or
stock indices movements to monitor the country's
prospects. Instead, he follows the consumer spending
trends of middle-class India.
Reddy believes
that consumers' buying trends are a far better
indication for understanding where this huge and
sometimes slowly-moving Asian nation is headed. "While
most of the parameters like interest rates and
appreciating currency look the same, what differentiates
India is that Indian consumers are currently on an
upward curve, and are learning to leverage," he says,
"and that's what makes the growth outlook for India in
the second half, and going into 2004, look much
stronger."
Reddy's tracking method may be
unusual, but with uninhibited spending and living on
credit cards, and changing products faster than ever,
the Indian middle class has indeed moved from the
age-old habit of functional living to a lifestyle based
on an unprecedented surge in consumer spending. "While
other Asian markets continue to see strong foreign fund
inflows, India may get a larger portion going by its
much stronger consumer boom," Reddy says.
To
Sandeep Dixit, economic and banking analyst for Deutsche
Bank Securities, change is being driven by the dynamics
of India's economic growth. "There is a structural
change going on. This is the logical result of the move
away from a supply-constrained economy to a
demand-driven one," he says. Moreover, the typical
Indian consumer's mindset has changed as well.
"Austerity is no longer considered a virtue and debt is
not a taboo any more in a typical middle-class Indian
family."
All that may be good tidings for
marketers in India, including global ones, but while
many are getting carried away, a few cautious analysts
say the party should not be taken for granted. "After
all, consumer moods have demonstrated inconsistencies
many times in the past decade since India's economy
opened up," said Vikas Sinha, a brand management
executive in an advertising agency. Moreover, the Indian
consumer is still extremely value conscious.
Still, few in the industry are willing to
believe that spending will slow any time soon. For
instance, a DSP-Merrill Lynch report released in early
August said that household consumption spending in India
could double to $510 billion by 2008. The KSA Technopak
survey agrees, "Ongoing demographic changes in India are
poised to push consumption spending from 12 percent,
observed for the last seven years, to 15.2 percent
annually up to 2008."
According to KSA, 48
percent of those it queried intend to maintain their
current spending levels in 2003, and 42 percent hope to
loosen their purse strings even more.
What Indians spend most
on
(KSA
Technopak survey)
The age at which the maximum share of
annual earnings is spent on a particular
category
| Age
15-19 |
20-24 |
25-34 |
35-44 |
45-58 |
| Books,
music, footwear |
Home
appliances, movies |
Eating
out |
Clothes,
furnishings, personal care |
Vacations |
DSP-Merrill
Lynch also feels that a jump in spending could actually
boost the Indian economy even further. "A rise in
spending would generate up to one million jobs every
year and double the country's Gross Domestic Product to
$1 trillion by 2010," it said in its report titled
"India Economics".
The credit boom that is
fueling spending to a large extent isn't going to
deflate soon either. "The banks are flush with funds and
interest rates aren't likely to take an upturn," said
Jagdish Khattar, managing director of Maruti Udyog,
India's largest carmaker. "I am bullish about the future
[of consumer spending habits] simply because consumer
finance is intensifying and local levies can only go one
way - down."
The age profile of the Indian
population is yet another bet for continued spending
growth. Over 45 percent of India's population is less
than 19 years, which is at the forefront of the current
boom, and would continue to be so. "The typical Indian
is getting younger, and with that the so-called teenage
trends of lifestyle and consumption are now becoming
mainstream," said Vikas Sinha, a brand management
executive in an advertising agency.
Nonetheless,
the real confidence in sustaining the party perhaps lies
elsewhere: in the irreversible change in the pattern,
not level of consumption. "More and more Indians are
moving away from functional life to a lifestyle of
fulfillment," said the KSA survey. "And that is trend
that will survive occasional dips, if any, in spending."
(Copyright 2003 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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