Last Updated: May 18, 2016
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Indian consumer segment is broadly segregated into urban and rural markets, and is attracting marketers from across the world. The sector comprises of a huge middle class, relatively large affluent class and a small economically disadvantaged class, with spending anticipated to more than double by 2025.
India remained the leader among all nations in the global consumer confidence index with a score of 131 points for the quarter ending December 2015, followed by the Philippines (117), Indonesia (115) and Thailand (114). Consumer confidence in India has remained high for nine consecutive quarters. Further, in the discretionary spending and savings category, nearly three out of every five respondents from India indicated the next 12 months as being good to buy, thus ensuring once again that India leads the global top 10 countries for this parameter during the quarter.
Global corporations view India as one of the key markets from where future growth is likely to emerge. The growth in India’s consumer market would be primarily driven by a favourable population composition and increasing disposable incomes. A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades, making the country the world’s fifth-largest consumer economy by 2025, up from the current 12th position.
According to a report by Boston Consulting Group (BCG) and the Confederation of Indian Industry (CII), India’s robust economic growth and rising household incomes would increase consumer spending to US$ 3.6 trillion by 2020. The maximum consumer spending is likely to occur in food, housing, consumer durables, transport and communication sectors. The report further stated that India's share of global consumption would expand more than twice to 5.8 per cent by 2020.
The growing purchasing power and rising influence of the social media have enabled Indian consumers to splurge on good things. The Indian consumer sector has grown at an annual rate of 5.7 per cent between FY2005 to FY 2015. Annual growth in the Indian consumption market is estimated to be 6.7 per cent during FY2015-20 and 7.1 per cent during FY2021-25.
A study by US-based networking solution giant CISCO, reveals that in India, the second-largest smartphone market globally, the number of smartphones is expected to grow strongly to over 650 million by 2019. India continues to witness high rate of mobile phone subscriptions. Indian smartphone shipments increased 28.8 per cent in 2015 to reach 103.6 million, thus crossing the 100 million mark, and becoming one of the fastest growing smartphone markets in Asia Pacific region. Sales of 4G-enabled handsets increased to 13.9 million units in quarter ending December 2015. According to CISCO’s Visual Networking Index (VNI) global mobile data traffic forecast for 2014–19, in India, one of the world's fastest growing Internet market, the number of tablets is estimated to reach more than 18 million by 2019.
Rating agency Crisil estimates that online retailing, both direct and through marketplaces, will grow threefold to become a Rs 50,000 crore (US$ 7.34 billion) industry by 2016. Also, the growth in Internet retail is expected to boost offline retail stores.
Amazon expects India to become its quickest market to reach US$ 10 billion in gross merchandise value (GMV) and to become its largest overseas market surpassing Japan, Germany and the UK.
Following are some major investments and developments in the Indian consumer market sector.
The Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in the electronics hardware-manufacturing sector through the automatic route. The government has also enabled 51 per cent FDI in multi-brand retail and 100 per cent in single-brand retail so as to attract more foreign investment into the country.
With the demand for skilled labour growing among Indian industries, the government plans to train 500 million people by 2022 and is also encouraging private players and entrepreneurs to invest in the venture. Many governments, corporate and educational organisations are working towards providing training and education to create a skilled workforce.
In the Union Budget 2016, the government has announced various tax sops and duty cuts for intermediary products to help increase local manufacturing and reduce import dependency. The government removed duties on various items such as components for microwaves, LCD fabrication units, charger, battery, wired speaker, headsets, broadband modems, set-top boxes and CCTV camera. Depending on the product category, various duties such as special additional duty, countervailing duty and basic customs duty have been reduced in the range of four to 12.5 per cent.
Union Cabinet reforms like implementation of the Goods and Services Tax (GST) and Seventh Pay Commission are expected to give a boost to consumer durable sector in India during 2016.
According to a recently published TechSci Research report, "India Food Services Market Forecast & Opportunities, 2020", the food services market in India is expected to expand at a CAGR of over 12 per cent through 2020, primarily driven by increasing disposable income, changing lifestyle, and changing tastes and preferences of consumers. Another major factor propelling the demand for food services in India is the growing youth population, primarily in the country’s urban regions. India has a large base of young consumers who form the majority of the workforce and, due to time constraints, barely get time for cooking.
India's e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 million shoppers by 2025, led by faster speeds on reliable telecom networks, faster adoption of online services and better variety as well as convenience, as per a report by Bank of America Merrill Lynch (BofA-ML).
According to the report titled "India Machine-to-Machine (M2M) Modules Market Opportunities & Forecast, 2020", the M2M modules market in India is expected to exceed US$ 4.4 billion by 2020. The market research firm stated that over the last few years, India has become one of the fastest growing markets for M2M modules in Asia-Pacific (APAC).
Research firm Nielsen projected that rural India’s FMCG market will surpass the US$ 100 billion mark by 2025. Online portals are expected to play a key role for companies trying to enter the hinterlands. The Internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a company’s reach.
Exchange Rate Used: INR 1 = US$ 0.0147 as on March 01, 2016
References: Media reports, press releases, Press Information Bureau (PIB), Union Budget 2016-17
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
Last Updated: May 18, 2016
CEO, Timex Group
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