Having a Middle class that just about Matches The Entire Population of United States is good enough, But having a Young Population that nearly Rivals the Total Citizenry of the EU is the Icing on the Cake for India

It’s not for nothing that marketers of the world are ‘getting ready for India’. But are they able to grasp the fine print when it comes to enticing this young country?

Generation gap. It’s the reason why every father considers his child to be chasing all the wrong things in life and the child considers his/her father to be too far away from today’s reality to make a judgment. But when you consider the way change happens in today’s time, it doesn’t take a father-son kind of age gap to look at a generation shift. A lot of us who came out of college or bagged our first jobs just around ten years back would notice a stark difference in the way youth behaves and acts today, and also how marketers try to target them. One instance that caught my attention just some time back was with respect to personal loans. Even till a decade back, we were thinking twice over just taking a loan for a two/four wheeler. Today, home loans are taken by people under 30, and there are loans for things like consumer electronics, mobiles & holidays. The last I heard was that there are loans for dinners in five star hotels as well!

Marketers do have a number of tricks in their playbooks, and this is just one of them - when you break up the amount payable into installments, price sensitivity to demand comes down. Of course, the fact remains that debt funded consumption booms are not uncommon. The US has just been through that and the resulting bust cycle, as its current national debt stands at a whopping $14.13 trillion, and it bears a household debt of $11.6 trillion by the end of September 2010 (GDP of $14.12 trillion as per World Bank). US has an external debt to GDP ratio of around 94.75% compared to 21.65% for India and 19.2% for China. So definitely, there is a lot more scope to fuel debt fuelled consumption here, as compared to countries like US, which have pretty much stretched themselves to the hilt, and cannot stretch further till some strong GDP growth numbers come in.

When we talk about the attractiveness of the Indian market, the first point that comes to mind is its middle class. As per NCAER, the Indian middle class (now defined as an income bracket of Rs.3.4 lakh to Rs.17 lakh as annual household income) will swell to 267.7 million by 2015 and 547 million by 2025. Current US population was around 310.23 million in 2010 and is showing a growth rate of around 0.9%. Even if it grows by 1% every year from now, it would reach around 360.16 million by 2025, which means that the Indian middle class alone would outnumber the entire US population by that time. However, many experts have called this a chimera, since the average income and prosperity level in India are far behind the levels of developed countries.
That’s where being a young country can be of immense help, and that is one area where India’s credentials are tough for even China to match. According to a report by McKinsey, India is expected to add a workforce of 250 million by this decade. By 2025, around 28% of China’s population will be aged 55 years or more; India, with 16%, of the same, will obviously be at a better position. India could potentially add 170 million urban workers between 2005 and 2025 compared to 50 million for China, if it gets its urbanization story going. In fact, the number of Indian people below the age of 25 is around 600 million, and the population of the entire EU is just touching 500 million so far.

Indeed, as discussed earlier, there are a lot of marketing experiments happening in the Indian market today, and the attempt to push debt fuelled consumption is just one of them. The fact that a consumption boom is emerging in India is not too far-fetched. Look at how costs of premium branded products (see table) are going up at rates of 15-20% every year, and yet they are finding takers. Of course, this inflation is hardly of concern to the government of the day. As the combined effect of economic growth (GDP growth of 8.6% expected this fiscal compared to 8% the previous fiscal) and favourable demographics come into play, there seems to be hardly a better market to play on. Discretionary spending is expected to be some 70% of overall spending by 2025 as compared to some 38% in 1995. Also the ratio of dependents is bound to come down to around 48% by 2025 compared to 60% by 2005. But the numbers can only provide the tip of the iceberg in a market like India, where the market is so diverse that it can befuddle even the most seasoned of marketing brains.

People who have studied this market have realized that the Indian youth follow no set patterns in their consumption behavior, and making any assumptions too soon is insensible. For instance, while private consumption will grow to Rs.67 trillion by 2015, organized retail will grow at a crisp pace to account for Rs.3 trillion by that year (thrice its value in 2010). However, unorganized retail isn’t a write-off at all, as it is expected to grow by Rs.4.5 trillion in the same period. They note that while Indians are going to unorganized retail for categories like apparel, footwear and electronics, they still prefer the traditional route for groceries, furniture, medicines, et al.

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Source : IIPM Editorial, 2011.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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