Prof K S Chandrasekar
A 432 million-population base in the middle-income group is an envy of a consumer products division of any multinational company. Although the income levels in the West and India differ exponentially, yet middle class in the West and India has the same basic three objectives i.e. lead a decent life style, own as many as possible, items of the material world and pay taxes and keep Governments afloat. Without taxes paid by them, there will be no Government. India’s middle-income group (popularly called middle-class) is about 31% of the total population base. Of this segment about 4% are extremely rich and about 10% have just graduated into the middle class and are feeling their way through the material world. In addition about 1% of the poor in the country are graduating into this middle-income group every year for the last ten years. This trend not only will continue but also will get accelerated. The forgoing is a remarkable achievement.
Those who are earning more than Rs.30 lakhs is considered to be rich, anyone getting between Rs.5 to Rs.30 lakhs is in the middle class who drive the consumption. Aspirers belong to Rs.1.15lakh to Rs.5 lakhs and destitute are getting an annual earning of less than Rs.1.15 lakhs. As per the projections, it is expected that by 2047, where the PM is looking for Viksit Bharat, they will constitute about 75% of the market and this group is expected to consume more and hence the local and national production will be consumed in total by these groups.India’s middle class is young – and they have money: 65% of the population is under 35 years old.
It has been found that in the present year, a significant proportion of poor would have moved out of dollar a day income (Western media concoction) into a decent life style.According to World Bank, inequality in India has come down significantly between 2011-12 and 2022-23, making it the fourth-most equal country globally.There is a sharp decrease in extreme poverty, which has dropped from 16.2% in 2011-12 to 2.3% in 2022-23. The report also say that the only three countries that have a better Gini Index score, a measure of equality, are the Slovak Republic, Slovenia and Belarus. India is much better placed than countries like China, the United States and the United Kingdom.A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality. India’s Gini Index stands at 25.5. This indicates that consumption by all is possible in this economy.
On a Purchase Power Parity (PPP) basis, the middle-income group in the West will have per capita income of roughly $7,000 to $8,000 a year as the middle-income group in the West has about ten times more income, but they pay a lot more to maintain a lifestyle. A 432 million middle-income earning segment in India would have about $2.8 Trillion a year to spend. Good news for the consumer goods industry of the world. The upper quartile of this middle-income group could buy all the Mercedes cars or Armani clothes or gold jewelry, business class seats in the airplane, the world could offer. The luxury segment is increasingly showing upward trend with the World major brands reaching India. The middle two, quartile will gobble up all the merchandise on the luxury store shelves in India, Europe and USA. The lowest quartile will need refrigerators, air conditioners, cell phones and TV sets in bulk than ever produced before. It is very unlike China. Whereas in China all ownership of luxury items is Government controlled, it is free for all in India.
Indian economy is evolving as a service exporting economy of the world. At home, it has evolved as a domestic consumption economy. The latter accounts for 65% of the total GDP. Compared to that, 42% of Chinese economy is for domestic consumption. These two statistics account for reasons of high disparity between two nations export performance. Indians consume more than they export; hence focus is on domestic markets. The reverse is true in case of China, where the focus is to grab FDI, build factories and export goods. Now consider the very large segment of population, less than 30 years age in India. Specifically, India has a large proportion of young people, with more than 50% of its population below 25 years old. It is active, educated, progressive and vibrant. Narrow down this segment into the most active group i.e. IT and BPO workers. They are most prevalent in Delhi, Bangalore, Mumbai, Pune and Kolkata. Each of them earns an average of $500 to $600 a month (about Rs.40,000). This is a fairly high income in India. Each has fewer responsibilities as their family life has just begun. Hence, with this much money in their pocket, they scour store shelves for designer jeans, good restaurants and quality housing. They get these and get ready for more, every month. A million and half of these young men and women have a billion and a half dollar to spend every month. This much money today is chasing too few products and services, hence there is not much to buy, restaurants are full to capacity. This has increased the travel on tourism purposes. The poor are working hard and sending their kids to schools and colleges. They wish to ensure good future for their children.
Local suppliers meet bulk of the demand. There is always a tendency to look for imports. Effort at times to replace imported goods with local products does not succeed. Quality, design and innovation are the key reasons. Hence imports continue to play a dominant role. In early fifties and sixties, goods made in Europe and US held sway in the market place. This in seventies was replaced by Japan, South Korea & Taiwan. Now Chinese consumer goods are playing a significant role. An obscure brand name and made in China will have fewer takers, although it may be very cheap. Indian brand names like Tata, Unilever and Godrej hold a sway in the market place. Branded retail sector is in pitiful shape. It is only 4% ($10 billion) of the total market. This sector is growing up rapidly, still does not pose a threat to obscure local brands. Retailing to a large extent is in private hands. Mom & pop stores dominate the landscape. Rough estimate is that there are 8 million retail outlets in India. It is a too little and completely un-organized. Shopping during festival seasons of Baisakhi, Diwali, Durga Puja or Eid is a nerve racking experience. Major players are having difficulty entering the market place. Reliance took the initiative recently to enter the retail market. It has heralded its entry as sales without parallel in shape and size. A pan-India network of retail outlets has changed the retailing landscape. Foreign retail vendors like Wal-Mart or Metro are not having smooth sailing, while trying to enter the Indian retail market. One of the many reasons for their lack of their success is that India fears that these chains will become outlets for Chinese made goods stores in India. Instead, India wishes for them to source most products in India. In addition India want them to source merchandise from India for sale in US and Europe. This will require FDI to encourage local producers and set up foreign brand names for manufacture in India. Consumer is King and Indian consumer tries to conquer all territories and are the backbone of the consumption economy.
(The author is Vice Chancellor, Cluster University of Jammu)
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