Indian Consumer Market

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Indian Consumer Market
a change from pyramid to sparkling diamond

INDIAN CONSUMER MARKET A CHANGE FROM PYRAMID TO SPARKLING DIAMOND

Indian Consumer Market
a change from pyramid to sparkling diamond
India’s ascendance as an economic power to reckon with, has forced the world to unravel the mystery called India. An intriguing element of this mystery is India’s consumer market; characterized by diverse languages, regions, religions, economic and social status, this market has always been a tricky proposition to understand. Now, as the market undergoes a paradigm shift due to India’s rapid economic growth and favorable demographics, it has also become a market impossible to dismiss. Global corporations view India as one of the key markets from where future growth will emerge. The growth in India’s consumer market will be primarily driven by a favorable population composition and rising disposable incomes. A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades and it will become the world’s 5th-largest consumer economy by 2025, up from 12th now. India’s consumer market till now was broadly defined as a pyramid; a very small affluent class with an appetite for luxury and high-end goods and services at the top, a middles-class at the center and a huge economically disadvantaged class at the bottom. This pyramid structure of the Indian market is slowly collapsing and being replaced by a diamond – a relatively large affluent class at the top, a huge middle class at the center and a small economically disadvantaged class at the lower end. The diamond represents increasing volume and value across all classes of Indian consumer market.

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INDIAN CONSUMER MARKET A CHANGE FROM PYRAMID TO SPARKLING DIAMOND Number of household by annual income bracket, 1 Millions. Globals Strivers Seekers Aspiress Deprived 91.3 101.1 2005 1.2 2.4 10.9 3.3 5.5 55.1 106.0 74.1 2015 33.1 94.9 93.1 49.9 2025 Middle Class 9.5

Aggregate disposable income by annual income bracket, 1 trillion rupees 2 Globals Strivers Seekers Aspiress Deprived 3.1 11.4 5.4 2005 2.0 1.6 6.3 3.8 15.2 14.6 3.8 2015 21.7 20.9 30.6 13.7 2.6 2025

Growth Silhouettes

2005 2015 2025

Households

Income

Source: The McKinsey Quarterly

Economic growth and rising disposable incomes
India is growing at an average annual rate of 7.6% for the past five years and it is expected to continue growing at an equal if not faster rate. The rapid economic growth is increasing and enhancing employment and business opportunities and in turn increasing disposable incomes. As the benefits of growth trickle down, an increasing number of people are moving up from the economically weaker class to join the middle class. The middle class with its rising numbers and incomes is thus becoming the biggest market segment. The affluent class too will continue to grow in terms of size and value, albeit, at a slower pace than the middle class. MGI study prediction on the effect of economic growth on different classes • Middle class, defined as households with disposable incomes from Rs 200,000 to 1,000,000 a year comprises about 50 million people, roughly 5% of the population at present. By 2025 the size of middle class will increase to about 583 million people, or 41% of the population.

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INDIAN CONSUMER MARKET A CHANGE FROM PYRAMID TO SPARKLING DIAMOND



Extreme rural poverty has declined from 94% in 1985 to 61% in 2005 and is projected to drop to 26% by 2025. Affluent class, defined as earning above Rs 1,000,000 a year will increase from 0.2% of the population at present to 2% of the population by 2025. Affluent class’s share of national private consumption will increase from 7% at present to 20% in 2025.



Pro-growth demographics
The widespread adoption of improved medical care and birth control since the 1970s has...
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