TECH TALK: India Rising: Consumer Power

Stephen Roach of Morgan Stanley wrote last October about one factor thats been driving companies into India the domestic market. Over a span of four days, I met with a number of corporate executives, investors, and senior government officials. Everywhere I went, the focus was on the Indian consumer. I met with the managements of a good cross-section of Indias major consumer companies — Hindustan Lever (softgoods), Pantaloon (retail), Raymond Textiles (clothing), and McDonalds (fast food). I also spoke with executives from banks and drug companies — all of whom have important consumer businesses. And I met with leading industrial companies such as Reliance, where a major five-year initiative has just been announced for the development of nationwide chain of hyper-stores and super-markets. I even went to the Phoenix shopping mall in Mumbai, which was bustling with activity. I have made similar trips to malls in China. There was one key difference between these two experiences — the locals were buying in India. This is consistent with what I heard from most of the consumer companies I saw — solid acceleration in same-store sales comparisons over the past six months.

The Wall Street Journal wrote a story recently on the growing spend by Indian consumers:

India has long beckoned as the next big market — and for just as long, has dashed such hopes. But the prediction may finally come true in 2006, thanks to the Indian consumer.

A decade ago, buying a motor scooter in India could take years and a stack of paperwork. These days, companies and banks court the consumer through instant mobile-phone messages. A buyer can plunk down just $22 and come away with a scooter on credit. Sales of two-wheelers — a hallmark of India’s emerging middle class — jumped 16% in the year ended March 31.

The sales are the latest example of why global executives are paying more attention to India, after decades of relative neglect. The nation’s deep pockets of computer programmers have spawned deep-pocketed urban consumers, now at the core of the consumer boom. Many younger Indians are more confident than their parents about the country’s economic direction, say executives, and are more willing to buy expensive foreign brands.

The story elaborated on Indias growing middle class and the money that is fueling the spend:

India currently has about 17 million households — or 90 million people — that belong to the country’s middle class, but earnings range between $4,500 and $22,000, according to the National Council for Applied Economic Research. The New Delhi think tank classifies an additional 287 million people as “aspirers,” or those that hope to join the middle class. Their household income is between $2,000 and $4,500. By 2010, these two groups combined will number 561 million people, predicts the economic council.

The widening of India’s middle class has a lot to do with the nation’s hot information-technology industry. The industry is expected to employ nine million relatively young workers in the next five years, almost triple current levels, according to a study from McKinsey & Co. and the National Association of Software and Services Companies, an Indian software lobby group. If you add in families, the study estimates that 90 million people will be riding the industry’s growth by 2010. In powering the nation’s exports and rising wealth, the study predicts, India’s IT sector will play a role similar to that of autos in Japan, luxury goods in France and microchips in Taiwan.

A lot of the new money is beginning to show up at the mall.

Tomorrow: Malls Everywhere

TECH TALK India Rising+T

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.