The ultimate objective of all production is consumption for the satisfaction of varied needs of man. A free market economy provides freedom to the consumers to buy and consume goods of their choice. Buying preferences of the consumers send signals to the producers to produce various commodities in required quantities. Producers, therefore, produces only those commodities which are desired by the consumers. Consumer behavior is related to likes and dislikes and expectations of the consumers. Consumer behavior has changed in recent years owing to enhanced awareness, information technology and more importantly governmental intervention through legislations everyone from every corner of the world wants to be a part of the Indian economic growth. But where are the real gems of growth and resources are lying hidden is needs to be identified and act accordingly. What we need to identify is the resources which will bring growth of India in the coming decades.
But is this growth is only for the Indian corporate and business dealers. To be very precise yes it is, but it is half true. Indian citizens have developed not only in terms of lifestyles but also in mindsets. Indian consumer minds have changed dramatically in the last 5 years if examined under a microscope. Indian Consumer mind have taken major changes in making India to dream the GDP growth of 10%.The urban population in India is India is currently 30% urbanised, while 70% of consumers are still in rural India. As far as consumption goes, 404 Million are either consuming or are aspiring consumers. 742 Million though are still under privileged. The urban populations have increased its appetite not only for Indian made goods but also foreign made goods. This is one of the main reasons why FDI investments in Indian consumer products have increased over the time.
The below image shows the population pattern of Urban and Rural.
One of the prime reasons for a one way growth in consumer product market is higher percentage of savings. Indian currently have savings a rate of 63.8% as compared to 28.4%.This high savings rate is making the one way growth of consumer product market. Higher per capita income, radical changes in the salary and business income growth opportunities are making the Indian consumer market to propel like mango groove.
Recent shift of focus by the Indian corporate towards the Indian rural market is the next growth opportunity being identified and delivered by the industry. Earlier we never saw tooth paste being sold at Rs.2/-.Now we find highest consumption of Rs.2/- packet toothpaste as compared to 100gm or more sized packets. Earlier purchasing electrical goods like TV, Refrigerator and other products were a dream. Now with falling prices (due to the blessing of competition) all these dreams are now a real part of day to day activities.
Opening up shops in rural India was a nightmare. Now due to lack of space we find mobile shops being run across the villages. Banks have also achieved one way growth to a certain extent with the business of loans. Banks have replaced the credit crisis of rural India but only to some extent.
In the coming years the Indian consumer market will find a host of radical changes which will force the Indian GDP to climb to 10%.
We already seen that shopping places have got converted from old Bazaar types to malls followed with various other type of changes from watching movie to going for a holiday tour. All these will bring the GDP growth of 10% for India.
Household assets are climbing in urban area and hence we will see a saturation point in the urban area in terms of consumer growth. Hence we will find a paradigm shift of focus towards rural Indian market. Over here the most interesting part will be the demand of cost competitive products and pricing of goods. Target oriented pricing will only improve the quality and market of rural India. What we need is affordability outlook from the rural consumer mindset.
The below image shows the consumer pattern in Urban and Rural India.
Rural market will improve further with adequate infrastructure development. Since proper infrastructure support will enable more companies in India to open up shops in villages and shift their resources to uplift the rural Indian economy. India is still ruled by a huge margin of many differences. Among all of them few are:
• 80% urban India is low/lower middle class in income terms – below Rs. 12,500 p.m.
• Only 15% is middle class, 5% upper class (64 million)
• Avg. monthly family income of urban Indians is Rs. 8,910 p.m
• 2/3rd urban Indians live in the tier 3 small towns (only 20% urban Indians live in the metros)
• Metros account for only 25% of the uppermost socio-economic class
• Only urban affluent (5%) lead the popularly perceived modern lifestyle
• Only 20% urban Indians have gone to college, only 3% have had their education completely in English
• Only 1 in 3 ‘employed’ in Metros works in the corporate world, an equally sizeable chunk are shop owners/traders/skilled workers
• Less than 3% urban Indians prefer to read in English
We find this GDP numbers not to climb from only on the shoulder of the consumer but also on the AGE and employee factor of the Indian population. Some analysis of the data will make it easier for all of you to understand what I wanted to communicate.
• Gen Now’ (roughly 30 to 45 yrs of age) is the biggest generation group in India (308 million individuals).
• ‘Gen Next’ (roughly 15 to 30 yrs of age) is a close second at 300 million individuals
• Only 16% ‘Gen Next’ are gainfully employed (2/3rd are students)
• ‘Gen Yest’ (roughly 45 to 60 yrs) are the most employed (60%) and have the best individual incomes (avg. of Rs. 4,985 or USD 110).
• ‘Gen Yest’ also have the highest penetration of credit cards, life insurance, and takes leisure holidays somewhat more frequently.
• There are only 40 million working women in India (9% of all women). 260 million are housewives.
• 2 out of 3 working women are also working moms.
Now it’s well clear that this pattern of change in the Indian population and behavioral change will bring the real growth for Indian corporate and GDP. One must understand that any countries GDP is dependent on the behavior of the consumers of that country.
We will find growth in long term perspective in doing investment in consumer goods related industry. I would like to accentuate the attention to this regard that a consumer goods industry includes health products too. So pharmacy will be another booming sector despite of several fights out with the patents. Mobile health centres are going to be the next improvised version of health care system.
Long term investments strategy should be the key investment theory in consumer goods industry. Short term investments will not provide you immediate results as investments in this sector and expansion of the business and gestation period of profitability is the key factor for taking long term call on investments and ROI. Rural India needs small consumer products at affordable prices. Companies dreaming to en-cash the potentiality will have to keep in mind this law of consumer
Indraneel Sen Gupta
Financial, Economic Writer and Research Analyst.