Future income projections will show what we already know based on data of the last five and ten years: that between now and 2015, if there is no dramatic change in policy, past patterns of income growth will perpetuate and the top (richest) 20 per cent of Consumer India will increase its income at a much faster rate than the rest of India and get even more unequally rich. We also know from past data that this group has a healthy income surplus, so, despite inflation, it will continue to increase its surplus. That’s why we haven’t seen any demand-led slowdown in expensive durables including cars, the stock market, in high-end smartphones and so on. That is why business class seats are not going a-begging despite ridiculous spot fares, because the opportunity cost of the buyers’ time to earn more is greater.
Housing is never a good indicator of how consumers are feeling because prices are often driven by how builders are feeling, and it is noteworthy that people are not quick to sell their property despite falling prices in some cities, so staying power is still strong. This group comprises around 50 million families or close to 250 million people and is significantly bigger than most other countries. Forget the per capita income of this group relative to other countries — that is an old consultant argument to keep multinationals feeling good about the price points at which they operate. The fact is that this group will have well over 50 per cent of the not inconsiderable income of all Indian households, and a much larger share of the income surpluses. Sure, current consumption takes place right down the income spectrum, and income and consumption growths will happen to varying degrees in all of Consumer India, and are not to be ignored. But the richest 20 per cent of Indian households will be the most potent driver of consumption of the near future. It isn’t all urban — it includes the well-connected (via roads and cars) rural dweller with an urban mindset as well.
Kishore Biyani has been saying for a while now that Consumer India watchers are too obsessed with income economics and are not seeing the full consumption story because they are missing out on social insights. Applying his India 1-2-3 construct, where India 2 comprises the people that constitute the service economy that serves India 1’s rich folks, what does the consumption story look like? First, that there is a large group, maybe three times that of India 1, whose incomes grow at the same pace as or even faster than its employers/customers, India 1. Second, they are far more sophisticated than their income levels would warrant, because of the connection. Just think about the number of people that “service” an average upper-class household.
I recently wrote an article for women on how to manage household help and the responses that poured in from India 1, especially younger householders, were very telling. There was a lot of comment on “back up” strategies because every service provider in the house needs to be backed up because women in this segment were very active outside the home, whether in a self-income generating role or as an “earning increase facilitator” for the man of the house. A young woman moaned that she had so many people working for her three-member family that she was contemplating hiring someone just to open the door for them in the mornings. That will not be hard to find. India 2 grabs earning opportunities; any of the helpers would happily send their ten- year-old child to do this before the late morning school-shift.
In addition to these “in-house” services, there are out-house services too. Home delivery people for everything under the sun, masseurs, curtain makers , fitness trainers at the gym and multiplex workers, among others. Economists would say it is the usual, expected trickle down multiplier, so what’s new? It is learning about it this way that helps companies targeting Consumer India to go from a global and generic understanding to exploit consumer markets better.
India 2 also is growing sophisticated very fast, has very steep learning curves and finds opportunities for selling value-added services very quickly — far more so than large companies do, actually. This column has written about mehndi walis at weddings who have noticed the increase in foreigners coming to upper-class Indian weddings thanks to foreign educated children, and extended their service line to include “sari draping” and “tattoos” in addition to traditional offerings. My istri wala who comes home to iron clothes, has figured that summer means lightly-starched cotton saris for me, sent to the laundry for “roll press”. He offered a new service at a price higher than ironing, lower than the laundry, using branded starch and five minutes of the spin dry cycle of my washing machine to eliminate dripping, followed by specialised ironing using a heavy iron! The curtain man has learnt to make fabric blinds, self taught from a book a customer gave him, the massage bai is charging extra for face massages and then on to facials and so on.
Even if growth in India 3 is slow, India 1 and on its back, India 2 will see sustained consumption growth, and is ready to spend more if relevant supply is made available.
The writer is an independent market strategy consultant