Shining with Bharat

The numbers coming out of the NCAER’s income survey are impressive. Not only is the number of crorepati households (those with an annual income of over Rs 1 crore) projected to leap from 20,000 in 2001-02 to 53,000 in 2005-06 and 140,000 by the end of the decade, a similar picture is observed in most other higher income categories.

Combine this with the expected decline in the lowest income class (those with annual household incomes below Rs 90,000) and India’s income demographics will begin to look dramatically different by 2009-10.

The proportion of this category will be down to around 52 per cent of the population as compared to 80 in 1995-96. And since 10 per cent of the crorepatis will be found in rural areas, and another sixth in towns with less than five lakh people, this means wealth is beginning to spread from India to Bharat.

This shift in income demographics is good news for Indian manufacturers, especially when combined with an overall increase in average incomes.

All available evidence suggests that demand skyrockets when per capita incomes start reaching around $800-$1,000. But the manufacturing sector has some hard work to do.

Evidence from the computer industry, for instance, shows that the share of imported products is greater than that of the local organised sector despite the fact that, at four million PCs per year, domestic demand is large enough to support global-sized local manufacturing.

Similarly, despite the steady growth in consumer demand, a large number of large-format retail chains seem to be losing money. And FMCG giant Hindustan Lever’s sales have been stagnating for a long time.

Clearly then, India Inc needs to get its act together and look at delivering greater value to customers — with affordability being an important element of the value mix.

To cite a few instances, the stocking of private store labels has allowed some large-format retail chains to break even much faster than rivals who focus on stocking higher-priced brands. Auto leader Maruti Udyog has got SBI to tailor EMI payments to suit rural needs — instead of monthly EMIs, the farm sector pays it twice a year, at harvest time.

Even in hospitality, budget hotels seem to be a winning idea — something the Tatas seem to have latched on to with rooms at Rs 1,000 a night. Increasing prosperity at the middle and bottom levels of the pyramid doesn’t mean Indians want to blow it all away.

Another point that needs to be kept in mind is that, barring a few exceptions like Haryana and Punjab, the number of rich households per million households (density) in most rural areas remains very low.

If these households are to be accessed by marketers, a whole new delivery mechanism may need to be created. Reliance Infocomm’s efforts to use the postal system to collect its bills in small towns appear to be a good example of such innovation.

The message is simple: the market is there. But it is the innovative minds that will reap the first harvest.