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The consumerisation of urban India

Feb 7, 2007

India is one of the world's youngest nations with nearly two-third of its population under the age of 35 years. Urban India accounts for nearly 30% of this burgeoning young population. There is a significant shift taking place in the consumption pattern of the young urban Indian consumer, aged between 21 and 40 years, led by various demographic, psychological and economic factors.Demographic trends and the strong growth in the Indian economy in the last few years are charting a new growth path for many consumer goods and services companies. The growth in the number of young working people in urban India who have grown up post liberalisation, rise in their aspiration levels and increase in their spending power will be the key drivers of growth for these businesses.

Favourable demographics
India's urban dwellers form 28% of the total population but account for about 42% of the total private consumption expenditure. Larger number of urban centres and the migration of the young rural population to urban centres for higher education and employment have driven urban growth rates. The growing share of young people in the population as well as development of urban India is leading to a rising number of working population in the cities who have higher spending power, led by high income growth and credit availability.

The urban population between the ages of 15 to 34 years is expected to increase from 107 m in 2001 to 138 m in 2011, an increase of 30%. Also the proportion of young urban dwellers is growing. The migration to urban areas for better career opportunities will lead to an increase in the 15-59 age groups in urban areas. This group will boost consumption - as they have higher earning capacity and will also be able to spend more on themselves.

Aspiration levels
Strong economic growth, increasing globalisation, easy availability of credit and the rise of BPO and retailing has resulted in higher household incomes, and these continue to rise with the Indian economy. Also, the easy availability of credit has raised these aspirations. In India there has been significant increase in the percentage of households in the high-income and middleclass groups in recent times. This higher income is driving aspirations, especially amongst the middle class, leading to an increase in the desire to change lifestyles by increasing consumption. Western lifestyle exposure through more foreign travel and higher penetration of television, internet and other media, has increased the desire of this class to update its lifestyle. Also, wide availability of financial products and lower interest rates has accelerated the penetration of credit. Ease of payment due to higher penetration of plastic money is also driving consumer-spend on impulse purchases.

Households in India (m)
The Classes1994-951999-002005-06
Rich (above US$ 4600)136
Consuming (US$ 970-4600)296675
Climbers (US$470-970)486678
Aspirants (US$340-470)483233
Destitutes (less than US$ 340)322417

In the last three to four years, there has been a marked shift in the consumption pattern. The consumers are not satisfied by purely spending on basic products and services; they want to indulge by consuming goods and services that satisfy their lifestyle needs, which can broadly be classified as leisure, convenience & comfort, wellness and aspirational needs. The malls are rapidly replacing the kirana stores and the cinema houses are now turning into multiplexes. The number of mobile users has increased by 86.6% CAGR since 1997 to 2006. Going forward, the demand for lifestyle goods is likely to witness robust growth.

The favourable demographics, rising income and change in lifestyle will lead to an explosive growth in the lifestyle categories like retail, ready to eat foods, gems, autos, travelling, hospitality etc. over the next few years. Not only the basic but the lifestyle goods and services are likely to be the next growth drivers.

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