Magic numbers

At a mere $500 per annum, as the National Council of Applied Economic Research’s (NCAER’s) latest income and consumer demographics’ survey brings out, the country has a fairly robust middle class, and not just in PPP (or purchasing power parity) terms. Currently, around 20 million Indian families (100 million consumers) have an annual income of over Rs 2 lakh, which makes them eligible to buy most goods peddled by the consumer goods firms.

If you lower the bar a bit, down to those earning around Rs 1.5 lakh, the number jumps quite sharply. Looked at another way, the NCAER numbers show around 25 per cent of Indian households own small- and large-sized colour television sets (an equal number own black and white sets), giving rise to an estimated middle class size of around 250 million.

More important, while even optimists have given up hoping for 8 per cent GDP growth over a sustained period, what the NCAER projections show is that, even at a lower growth rate of 6.75 per cent, there is a sharp change in the country’s income demographics.

Those earning over Rs 2 lakh per year are projected to nearly treble between 2001-02 and 2009-10 while those earning over Rs 5 lakh will nearly quadruple. What this does to demand is even more amazing, as usage patterns differ dramatically when you go up the income chain—the usage of motorcycles, for instance, more than doubles when you look at families earning Rs 2-5 lakh, in comparison with those earning between Rs 90,000 and Rs 2 lakh. As a result, the demand for motorcycles, for instance, will grow by more than 80 per cent over the next four years.

In the case of cars/jeeps, virtually no households earning under Rs 2 lakh a year own such vehicles, but the figure jumps to 29 per cent in the case of those earning Rs 2-5 lakh and 48 per cent in the case of those earning Rs 5-10 lakh. Considering how the number of households in these upper income groups is set to explode, so will demand, and not just for cars.

Even more interesting, the NCAER studies (The Great Indian Market, 2005, and The Great Indian Middle Class, 2004) show that while rural markets were always important, they are becoming almost vital, as usage habits here are also on the rise.

This too is a function of the increased incomes projected in rural and small town India. To the extent that there are still large differences—79 per cent of those households earning Rs 2-5 lakh in urban India own refrigerators, versus just 33 per cent in rural areas in the same income group—they seem related more to the availability of electricity than to other factors.

This underscores what will happen to demand once electrification picks up in the rural areas. Not surprisingly, in just the last year or so, most consumer goods companies have strongly beefed up their rural operations and staffing. Expect the knowledge of local markets and languages to be an important criterion for marketers in the near future.