Changing Consumer Pattern in India

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Changing India, Changing Consumption, Changing Consumers
Background Factors Contributing to a Dynamic Economy Changing Priorities in Consumer Spending Impact of the Changing Consumption Patterns Conclusion 02 02 03 05 10

perspective | Volume 03
a quar terly repor t by Vol u me 0 3 / 2 0 1 0

As India changes and reinvents itself at a remarkably accelerated pace, the private consumption patterns of its population have been transformed. What is new about these changes in the consumer behaviour of 1.15 billion individuals? Historically, change has been a gradual and largely predictable process, allowing industry experts to reasonably forecast consumption patterns and consumer behaviour in the near future based on the current and immediate past. Those days are history. The fundamental shifts in consumer spending patterns have far-reaching implications not only for manufacturers, marketers and retailers of consumer products and services, but for all of India and Indian society as a whole. This article highlights and analyses these shifts in consumer spending patterns and the implications for manufacturers, marketers and brand owners, and retailers. The key lies in understanding the nature of this change in consumer behaviour and consumption patterns and thereby the change in the wallet-share of Indian consumers. Today’s reality consists of many new, unique and disparate factors that have come into play simultaneously.

Factors Contributing to a Dynamic Economy
First, India has seen a very strong economic growth (averaging around 6.5 per cent) for almost 18 years on the trot, with the last five showing an even stronger growth trajectory. With the size of the economy hitting a US$ 1,000 billion mark about two years ago, its scale can now support myriad new consumption categories that go much beyond traditional needs and desires. More details on some of these new categories of consumption are discussed later. While India’s annual per capita income in absolute terms remains below US$ 1,000, the annual household income is now almost US$ 4,000, and if purchasing power parity is to be applied, then it is over US$ 12,000 per year. Further, it is quite likely to more than double in the next 10 years, creating the potential for a sustained boom in consumer spending in the decades to come. Second, the demographic profile is turning extremely favourable towards sustaining growth in economic activity and in consumption, with almost 550 million consumers across urban and rural India in the 15+ age group (excluding the 250 million or so who are still, unfortunately, below the poverty line). Of these, about 400 million are in rural India while the remaining live in urban India. Of the latter, about 100 million reside in the top 100 cities alone, and there is a very positive geographic broad-basing of this consuming class. As the dependency ratio continues to drop in India (in marked contrast with the developed economies where it continues to rise, creating the spectre of social challenges in the decades to come), and as more Indians get educated, their consumption aspirations will continue to change very markedly. Third, there is a very encouraging broad-basing of the different sub-components of overall gross domestic output, encouraging broad-basing of geographic spread of economic activity, and well-founded optimism on broad-basing of the nature of jobs that match the population’s current skill-sets. Exhibit 1:

Current Break-up of India’s 480 Million Jobs

Agriculture: 18 per cent of GDP 56 per cent of the workforce (270 million) , • Manufacturing: 26 per cent of GDP 14 per cent of the workforce (65 million) , • Services: 56 per cent of GDP 29 per cent of the workforce (145 million) ,

An estimated 90+ million jobs will be created over the next five years, of which almost 50 per cent are expected to be in the services sector (45 million). Of these, an estimated 7-10 million are expected to be created in...
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