Consumer Market Trends
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During the post liberalization decade, from 1993-94 to 2003-04 the average annualized growth rate of India’s Gross Domestic Product was a little above 6% and has arguably since crossed the 7% mark ...

During the post liberalization decade, from 1993-94 to 2003-04 the average annualized growth rate of India’s Gross Domestic Product was a little above 6% and has arguably since crossed the 7% mark on a long term basis. This has brought about a considerable increase in India’s personal disposable income. As a result, both saving and consumption expenditure in the household sector has had considerable growth. During 2003-04, India’s total personal disposable income was Rs. 23,585 billion and 24.6% of this income was directed into savings by the household sector. By 2008-09, our estimates show that India’s total annual personal disposable income has grown to Rs 36,059 billion (about 52% being urban) and the annual savings have grown to Rs 9,239 billion, at present.

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Consumer Market Trends Document Transcript

  • 1. Indicus Analytics, An Economics Research Firm www.indicus.net Consumer Market Trends for India – Incomes and Savings Amit Sinha View the article here High growth has contributed to greater incomes for Indian households, which in turn has enabled Indian households to both save and spend more. We have in the past few years observed that household sector savings have in fact grown by far more than any of the other macro-indicators. Greater incomes do imply greater expenditures in the short term, but greater savings ensure long term growth of the economy, employment opportunities, and household incomes. Among the key cities of India, our research shows that the 2nd rung of cities are the biggest savers – the beta cities (11th to 30th in terms of market size) save as much as 32% of their income, whereas the top 10 cities have a savings rate of under 22%. During the post liberalization decade, from 1993-94 to 2003-04 the average annualized growth rate of India’s Gross Domestic Product was a little above 6% and has arguably since crossed the 7% mark on a long term basis. This has brought about a considerable increase in India’s personal disposable income. As a result, both saving and consumption expenditure in the household sector has had
  • 2. Indicus Analytics, An Economics Research Firm www.indicus.net considerable growth. During 2003-04, India’s total personal disposable income was Rs. 23,585 billion and 24.6% of this income was directed into savings by the household sector. By 2008-09, our estimates show that India’s total annual personal disposable income has grown to Rs 36,059 billion (about 52% being urban) and the annual savings have grown to Rs 9,239 billion, at present. High growth has contributed to greater incomes for Indian households, which in turn has enabled Indian households to both save and spend more. We have in the past few years observed that household sector savings have in fact grown by far more than any of the other macro- indicators. This is of course a desirable outcome. Greater incomes do imply greater expenditures in the short term, but greater savings (if translated into good quality investments) ensure long term growth of the economy, employment opportunities, and household incomes. Income Distribution A study by Debroy and Bhandari (2007) supports the argument that inequality is in fact increasing in India. The most used measure for inequality is the Gini coefficient, the higher the value of the Gini, the greater the inequality levels. The study looked at rural and urban inequality levels state-wise since 1983. The broad insight is that across almost all the states, inequality levels have increased. This of course has many ramifications for consumer markets. Greater inequality levels reflect that the higher economic segments are rising relatively faster than the lower ones. Increasing inequality does not mean that poverty is rising, there is incontrovertible evidence that poverty levels in India have been falling in almost all the states. Currently, among the larger states, J&K, Punjab and Himachal have
  • 3. Indicus Analytics, An Economics Research Firm www.indicus.net the lowest poverty levels. Among the smaller states, Meghalaya, Manipur and Mizoram follwed by Arunachal tend to have poverty levels in the single digits. Orissa, Bihar, UP and MP have amongst the highest poverty levels amongst the larger states. Note that these states also tend to have low inequality levels, indicating that overall these states are poor with high levels of deprivation. A comparison of the State level GDP growth and poverty reduction shows that indeed, those states that have had higher levels of growth have been able to reduce poverty levels much more than those with lower GDP growth. This is an important learning for policy and marketers alike. Indeed, greater growth is a very good predictor of the rise in consumer buying power. The key cities The top 112 cities account for about 200 million Indians which is more than 60% of urban India. These cities constitute a market of consumers whose combined annual incomes are Rs 13,261 billion. Their combined savings are Rs 3,516 billion which is about 26.5% of income. The large cities have a significantly lower savings rate. The top 10 cities have a savings rate of under 22%, whereas the gamma and delta cities (82 in number) have savings rate around 29%. Clearly the EMI culture hasn’t percolated down to too many cities in India. An interesting piece of statistics is that the 2nd rung of cities are the biggest savers – the beta cities save as much as 32% of their income and reinforce the old adage that savings and investment are the route to growth. The Southerners are by far the largest savers with a savings rate of over 31%. The West (it includes Rajasthan and MP) has the lowest savings rate of just 23%. Within West, Gujarat is a high saver with 27% savings rate
  • 4. Indicus Analytics, An Economics Research Firm www.indicus.net whereas Maharashtra saves only 18%. Madhya Pradesh is a very high saver with savings rate of 38%. Contrary to popular wisdom, the North is not exactly spendthrift. They are second only to the South in savings rate. Mumbai has the lowest savings rate. Delhi, Kolkata and Mumbai’s neighbours are also low savers. Bangalore and Hyderabad are high savers, much higher than average. The fastest growing cities in terms of market size, during the last two years are Silvassa, Gandhinagar, Bokaro, Surat, Thiruvallur, Agartala, Chandigarh, Thanjavur, Kohima, Noida. Our estimates show that these cities grew at between 15-23% per annum during the period 2006 to 2008. The slowest growing cities (from the top 112) also grew at 7-8% per annum during the same period.
  • 5. Indicus Analytics, An Economics Research Firm www.indicus.net For query or placing orders on Indicus Products please contact Indicus Analytics Pvt. Ltd. 2nd Floor, Nehru House, 4 Bahadur Shah Zafar Marg New Delhi- 110002. Phone: 91-11-42512400/01 E-mail: products@indicus.net www.indicus.net