Growing middle class to drive growth in India

10 August 2010

NEW DELHI: The increasing size of the middle class and accelerating urbanisation in India will provide substantial opportunities for brands.

According the National Council of Applied Economic Research, the think tank, at least 45% of the Asian nation's population are likely to live in towns and cities by 2050.

This compares with a total of 30% at present, and should result in 379m people migrating from rural areas during the next four decades.

Currently, the 20 biggest cities in India contain 10% of its residents but generate 31% of earnings, 60% of surplus income and 21% of consumer spending.

Rural areas - currently home to 70% of Indians - are also undergoing a transition.

Around 42% of people in these markets are predicted to earn more from industries like construction and retail, rather than agriculture in the future.

"While there is a shift in income sources and consumption patterns by consumers in rural India, equitable growth of all regions of the country remains a challenge," said Rajesh Shukla, senior fellow at NCAER.

Elsewhere, the NCAER stated there are now 46.7m wealthy households worth 1.80 lakh rupees a year in India, up from 13.8m in 2001/02.

This figure stands at 41m for poor households, where the threshold falls at 40,000 rupees, measured against 65.2 million earlier at the start of the millennium.

The expansion of the middle class - responsible for between 45,000 rupees and 1.80 lakh rupees annually - to 140.7m households means this group constitutes a 62% majority.

Two-thirds of people fitting this profile live in urban centres, a trend that has intensified over the last 15 years.

"Their growing clout becomes even more apparent when one looks at the ownership patterns of households goods," NCAER's research continued.

As evidence of this, the organisation estimated that 49% of cars on the road in India have middle class drivers, declining to 7% for the most well-off.

Similarly, the first of these demographics can lay claim to 53% of air conditioning units and nearly 46% of credit cards.

"The wheel of fortune continues to spin in India, with each level of household income set to move a notch higher by the end of the decade," the study predicted.

Such a change will not overcome a wide gap in wealth distribution, as the richest 44% of consumers control 93% of surplus income.

However, as the 60% of Indians at the "bottom of the pyramid" deliver 40% of all spending, they are still an attractive target audience.

"The bottom of the pyramid consumer is hard to ignore for any marketer. He is the one driving consumption through sheer numbers," Shukla added.

"This is one factor that remains of critical importance in the Indian market."

The relative youth of the working population is also advantageous, with 140m households under the age of 45 years old, and a quarter of the highest earners in the 26-35 year old age range.

Data sourced from Economic Times/Times of India/India Today; additional content by Warc staff