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India: A domestic consumption led growth story

Ravi Capoor, Former CEO, IBEF

Jun 09, 2016 13:23

The absolute size of India’s youth combined with improved education is expected to make way for sustained growth in domestic purchasing power. In fact, the recent report from Goldman Sachs further goes on to say that the domestic demand from India’s millennials will make India’s consumer story one of the world’s most compelling for the next 20 years. "We believe most of the new generation of India's youth will first fall into urban mass, a cohort that is 129 million people today, earning $3,200 on average. The expansion of urban mass, both in size and income level, will be the key driver of India's consumption story," the report titled 'India Consumer Close-Up' said.

The report mentioned that India’s consumer story is expected to be shaped by its 440 million millennials (those reached adulthood around 2000) and 390 million Gen-Z (born after 2000). “We estimate that the workforce that falls into the urban middle ($11,000 annual income) stands at 27 million, or 2 per cent of population. It will expand, but investors need to be careful in calibrating the potential addressable market for companies targeting this cohort. Brand investing will be a big theme in everything. But we note: India’s urban mass will trade up into brands that offer the most incremental value and quality, but may not readily jump to aspirational brands,” it said.

Mobile connectivity and E-commerce are expected to be the areas where India will leapfrog the most and improved mobile connectivity is expected to challenge the domination of TV as a primary source of household entertainment over time, creating a bigger profit pool for content providers and mobile gaming. The report further focused on key product areas that are expected to see strong growth in coming years like packaged snacks, baby products, premium personal care, scooters, SUVs and jewellery. But one profit pool that may grow faster than them all is restaurants, it added.

It is important to note here that India’s strong consumer growth story in intact and consumer behaviour and preferences of the Indian consumer are very different, as compared to say China. However, the aspirational behaviour, backed by the sheer size of the demography, is expected to offer numerous opportunities for global and domestic companies to find their right niche and capitalise on that.