Brand owners could gain from focus on India

29 July 2010

NEW DELHI: Brand owners could gain significant benefits from focusing their efforts on India, where consumer spending may prove more resilient than other emerging markets.

According to a report from the Schwab Center for Financial Research, the country has a variety of factors in its favour.

"Low penetration of goods and services combined with a large population experiencing rising incomes is likely to help India sustain near-term growth," said Michelle Gibley, a senior analyst at Schwab.

Alongside housing 1.2 billion people, it has a young workforce which is set to expand in size by 46%, or 275 million people, between 2000 and 2025.

The domestic middle class also now encompasses 38 million shoppers, including a number of English-speaking graduates employed in the services and IT industries.

"Increasingly, the middle class has the income to spend on discretionary items and is becoming more comfortable with debt and credit card usage," said Gibley.

"In fact, companies are refining products to meet the unique needs of Indian consumers, such as a washing machine that automatically finishes a wash after a power outage."

At present, however per capita income is relatively low, standing at $1,031 (€792; £662) in 2009, meaning manufacturers must offer goods to suit a range of budgets.

More positively, rural areas are posting the fastest improvement in expenditure, and currently account for nearly half of India's GDP.

"This type of income growth can create a powerful spending force, because low-wage workers typically spend rather than save," Gibley added.

As consumer spending generates 60% of India's GDP, with exports on 20% – just half the figure recorded in China – it may also be insulated against broader volatility in the worldwide financial climate.

"The fact that India's economy is less connected to foreign economies can be an advantage when global growth slows," said Gibley.

Despite this, some obstacles remain, like a lack of local talent, an under-developed infrastructure and vulnerability to rising food prices.

"India's economy is prone to bouts of inflation due to an inability to get products to market," Gibley added.

Data sourced from Schwab Center for Financial Research; additonal content by Warc staff