Consumer's Paradise

Figures in () are population in million
Source: "The Great Indian Middle Class" NCAER

A growing middle class, rising incomes and a trend towards discretionary spending have put India on the global consumerist map. With private consumption pegged at $548 billion (almost 59% of GDP), India’s purchasing appetite is strengthening. Add to that a 9% annual growth in GDP and it is a consumer’s paradise in the making. What’s more, the swelling ranks of home loan seekers – at 21 million today, up from 2.6 million a decade ago – and credit card holders at 18 million on last count, point to an increased appetite for credit-led consumption.

Living in Style:
But wait. Though total private consumption has been growing at 10% annually over the last few years, overall consumption has actually declined, the recent Economic Survey points out. Experts, however, are not alarmed. They believe what’s more significant is the change in the consumer spending basket, which reflects a preference towards lifestyle enhancing purchases.

What is driving this change? The emerging middle class with a yearly average household spend of Rs. 122,446 (as per Technopak), and its rising incomes, is one driver. A PricewaterhouseCoopers research has shown that per capita income has risen from $460 in 2002 to $620 in 2005. The Associated Chambers of Commerce and Industry(ASSOCHAM) in India says per capita income of average salaried employees increased by 30% in 2006. Disposable incomes are also pegged to go up by an average of 8.5% every year until 2015, says the PwC study. Discretionary spending is witnessing a 16% rise among the urban and middle classes. It is no wonder then that LG’s sales grew from Rs. 125 crore to Rs. 8,250 crore in a decade and Reebok has notched up a compounded 50% growth in income over its 12-year tenure in India. “Technology adoption, coupled with higher disposable incomes and growing aspiration levels, have contributed to the faster growth of high-end products in India,” says Samsung India’s Deputy Managing Director R Zutzhi.

Earn to Spend:
More working women have also helped. Urban working women, on an average, spend 24% of earnings on improving the quality of their own lives, as compared to 13% on household purchases, says the PwC study. “Rising income is pushing consumers into spending on non-food items, apparel and entertainment,” says Technopak Chairman Arvind Singhal. Since the 1990s the spending basket has expanded to include lifestyle and luxury items, in 2006, newer categories like servicing of loans and vacationing have sprung up, a study by the consulting firm says. A sign of changing times.