Demand Curve Glimpses into the Indian Economy and Consumers Indicus Analytics
Demand Curve is a weekly series of insights into the Indian Economy and Consumer Markets.The series was produced by Indicus Analytics and published by Mint between March and September, 2009.The series draws mainly from the Products suite of Indicus Analytics.These are: District GDP of India Industrial Skyline of India Market Skyline of India City Skyline of India City Skyline of India – Neighborhood series Indian Financial Scape Indian Consumer Spectrum Housing Skyline of India Indian Development Landscape 2
1. Heterogeneity in rural markets Most market size data on rural India takes the aggregate households or household spend for a predetermined geographical boundary. District boundary is the most used defining characteristic, though some of the more research savvy look at Unlike in urban markets market sizes down to the block level, and almost no one looks at up-to-date village level data for their sales and market planning. where demand is highly Unlike in urban markets where demand is highly concentrated, concentrated, rural markets rural markets tend to be spread out. This, of course, dramatically tend to be spread out. This increases the sales efforts and costs. Consequently, though many increases the sales efforts rural markets look good on paper, in reality they are quite costly to service. and costs The best way to compare rural locations is, therefore, to look at market density, or expenditure per unit area. The accompanying graphic provides the 10 best rural locations in India as per this parameter. We find that markets that are otherwise quite large, do not show up as the best in terms of market density. Large parts of Gurgaon have highly educated households with organized-sector jobs living in its rural areas. Moreover, high land values have also dramatically increased the wealth and incomes of its traditional residents. Gurgaon’s rural area, therefore, scores high because of the growing suburbia.Source: Market Skyline of India The story of Kerala is different. Cash crops combined with returning international workers, continued repatriations and high educational profiles make its rural markets similar to urban markets. The story of Jharkhand and West Bengal’s districts is, however, different. These rural markets are characterized not by high per household expenditure, but a high population density.
The districts of Malda, Murshidabad and Birbhum in West Bengal and Sahibganj in Jharkhand have extremely fertile land fed by the Ganga that has contributed to the high population densities in these areas. Cross- border trade with Bangladesh also contributes to the high market density levels. These four contiguous districts have a largeUnlike in urban markets number of poor, underprivileged tribalwhere demand is highly population, and poor education levels. Theseconcentrated, rural markets rural markets, therefore, are more agriculture-tend to be spread out. This dominated, combined with low per capitaincreases the sales efforts incomes. Consequently, these are notand costs premium markets such as the ones in Gurgaon or Wayanad, Kollam or Kottayam. They are large markets characterized by greater demand for low-quality, low-cost goods and services. 4
Density, therefore, is just one measure that companies interested in servicing rural markets need to look for. There is a large heterogeneity in the character of rural markets. The Union territories of Daman and Diu, Lakshadweep and Chandigarh top the charts in rural market density, while among the states it is Kerala, West Bengal and Haryana that lead. However, there are significant differences in the market characteristics in these states. Some such as those in Kerala are large markets of premium goods and services—but they have a mobile consumer base that can travel to neighbouring cities for major purchases. At the other extreme are the large markets such as those in West Bengal, that are characterized by a poorly educated, poor and underprivileged, relatively immobile but large consumer base.Source: Market Skyline of India These markets would be low in purchases of premium products or durables. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 5
2. Suburbs have come to be independent economic entitiesThese sibling locationsinclude communities thatmay be large such as NaviMumbai or small such as SaltLake or spontaneously arisensuch as large tracts ofGhaziabad, with good urbanplanning such as Noida orwithout quality infrastructuresuch as GurgaonSource: Market Skyline of IndiaNo analysis on the top Indian cities can be complete without a mention of the suburbs around them.Typically, a suburb is a residential area or community outlying a city such that those living in the suburbcan commute to the main city for their economic needs. Internationally, the term suburb conjures upimages of a relatively unspoilt, less densely populated and predominantly residential community close toa city. In India, it is difficult to find such conditions. Whether it is Gurgaon, or Salt Lake, we find them tobe economic entities quite independent from the larger city near which they are located.
For instance, Noida, Ghaziabad, Faridabad, and Gurgaon are much more than mere suburbs of New Delhi. But they are also not large enough to be called New Delhi’s twins. These are younger cities which may, one day, even overtake New Delhi. These sibling locations include There are quite a few such locations in India. communities that may be large such There is Salt Lake near Kolkata, Navi Mumbai in Thane district, the communities on Bangalore- as Navi Mumbai or small such as Hosur and Bangalore-Mysore routes in Bangalore Salt Lake or spontaneously arisen rural district, Pimpri Chinchwad near Pune, and so such as large tracts of Ghaziabad, on. And there are many more across the country, with good urban planning such as not as well known yet, but will be known soon enough. Noida or without quality These cities typically fulfil an important need that infrastructure such as Gurgaon the larger city was unable to offer. In the initial phase they may have been unidimensional but over time they have gained a distinct character and momentum of their own. The lack of office space in New Delhi, the lack of new residentialSource: Market Skyline of India areas in Kolkata and expensive real estate in Mumbai have contributed to the growth of Salt Lake, Gurgaon, and Navi Mumbai. Now all three are more than just real estate alternatives to larger neighbours. 7
These sibling locations include communities that may be large such as Navi Mumbai or small such as Salt Lake or spontaneously arisen such as large tracts of Ghaziabad, with good urban planning such as Noida or without These sibling locations include quality infrastructure such as Gurgaon. communities that may be large such as Some have a large concentration of Navi Mumbai or small such as Salt high-income households such as Lake or spontaneously arisen such as Gurgaon, others like those around large tracts of Ghaziabad, with good Kolkata have a large number of poor, urban planning such as Noida or still others such as Navi Mumbai tend to without quality infrastructure such as have a large middle class. There is only one thing in common Gurgaon between them—they are in the geographical vicinity of a larger city. And they are increasingly becoming more important than their older sibling.Source: Market Skyline of India Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 8
3. Middle class accounts for bulk of urban spendingWhat we find is that it is themiddle bulge of expenditureby the middle class thataccounts for the bulk ofIndia’s urban consumerexpenditureSource: Market Skyline of IndiaThe bottom of the pyramid is the buzzword that has captured the hearts and minds of academics andmarketeers alike. Though large in numbers, the consumer spend by this segment is quite low.What we find is that it is the middle bulge of expenditure by the middle class that accounts for the bulk ofIndia’s urban consumer expenditure. About 61% of total urban income comes from households that can beclassified as middle class—earning be-tween Rs75,000 and Rs 5 lakh a year.This segment comprises the lower middle-class earning between Rs75,000 and Rs1.5 lakh a year (10% oftotal urban income is from this category), the middle-class earning between Rs1.5 lakh and Rs2 lakh ayear (29% of income share) and the upper middle-class earning between Rs3 lakh and Rs5 lakh a year (22% of urban income).By market size, the largest urban middle-class markets are in the main cities, with Delhi in first place,followed by Mumbai, Ahmedabad, Bangalore, Chennai, Kolkata and Pune. There are also other attractivemarkets that are in the second rung and whose middle class spends between Rs5,000 crore and Rs10,000crore a year.
This group of urban areas includes those that benefit from proximity to the metros— Rangareddy to Hyderabad and TiruvallurWhat we find is that it is the to Chennai. West Bengal has threemiddle bulge of expenditure by districts in this list, Burdwan, Howrah andthe middle class that accounts Hoogly, whose large population is afor the bulk of India’s urban significant factor in expenditures by theconsumer expenditure middle class. There are other cities as well that are more than just suburbs of larger cities.Source: Market Skyline of India Jaipur is not only the capital of Rajasthan, it is also the gateway to a large but thinly spread market in the interiors of the desert state. Nagpur is among India’s most cosmopolitan cities with people from Gujarat, Andhra Pradesh, Madhya Pradesh and also the east, found in large numbers. The fact that it is the closest to being at the geographic centre of the country helps a bit. 10
Nashik has risen on the back of its cooperative movement and the technologically progressive farmers in its vicinity. Rajkot is the capital of erstwhile What we find is that it is the Saurashtra, an important centre for small middle bulge of expenditure and medium enterprises. Baroda was by the middle class that known as the cultural and educational accounts for the bulk of capital of Gujarat and though it has since India’s urban consumer the 1970s lost this position, its large expenditure industrial base continues to power consumer spending. The size and expanse of the great Indian middle class does not follow anySource: Market Skyline of India standard patterns and theories. It is created via a combination of agriculture, industry, human capital, good infrastructure or trade. The story of every so-called tier-2 town is different, but there is one thing they have in common with each other—large middle-class expenditure. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 11
4. Smaller towns are more affected by the monsoonSo far manufacturing & serviceindustries have been flagging in thesecities, but the combination of highagricultural activity & production ofcommercial crops makes these townsideal locations for processing of theseagricultural productsSource: City Skyline of IndiaNot everyone realizes that dependence on the monsoon is not limited to rural areas alone. Workers inmany Indian cities are heavily engaged in agriculture and related activities, and for them, the monsoon willplay an important role.Naturally, the smaller the town, the larger the share of agricultural dominance. Ascities grow in size, agricultural land is taken over for non-farm activities, and industry and servicesproliferate. Metros, for example, have less than 2% of their workers in farm-related activities, and this, ofcourse, includes fishing in Mumbai, Chennai and Kolkata.These Alpha cities have the largest market sizes, but at the other end of the spectrum are the Delta cities,a large group of 50 cities that are budding, or have the potential to turn into much larger centres. It is thisgroup of cities that have a preponderance of labour engaged in primary sector activities. Clearly, along withthe rural markets, these towns owe their income more to agriculture than to industry or service sectors,and consumer expenditures in these cities will, to a large extent, be vulnerable to the vagaries of themonsoon.
Source: City Skyline of IndiaMany of these Delta cities are steadily gaining the necessary scales in terms of population and market size.Capitals of states and Union territories, such as Gandhinagar, Srinagar and Shillong, centres that are siblingsof larger cities such as Gurgaon and Noida (near Delhi), industrial centres such as Durg-Bhilai (Chhattisgarh)and Bokaro (Jharkhand), historically important cities such as Udaipur (Rajasthan) and Mysore (Karnataka),large emerging centres such as Jamnagar (Gujarat), religious cities such as Varanasi (Uttar Pradesh) andAjmer (Rajasthan), etc.If we look at the set of Delta cities that have at least 60% of their workers engaged in the primary sector, it iscurious that they lie geographically almost totally in the south-central belt of the country; only Shimla is anexception. Durg-Bhilai, of course, is a mining centre.So far manufacturing and service industries have been flagging in these cities, but the combination of highagricultural activity and production of commercial crops, such as sugar cane, cotton, groundnut and chilliesmakes these towns ideal locations for processing of these agricultural products through further stages.However, these towns have not yet boomed into manufacturing centres.Purchases of many services and manufactured goods in these centres are directly affected by theperformance of the agriculture sector. High-end hospitals in Gurgaon, for instance, are looking at the rural richas an important new consumer segment to target in this era of manufacturing and services slowdown. Eventhe government is becoming more sensitive to the underlying economic structure.The first farmer special economic zone in the country is to be set up in Nellore district of Andhra Pradesh, andthis should be a cue to other centres to develop accordingly and put in place the backward and forwardlinkages necessary to add value to the already existing agricultural resources within or close to urban areas.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and 13markets.
5. How multiple-income family types differ across citiesAs India and Indian consumers changerapidly, there is one churn that hasalready played out in urban India. Thejoint family is dead and the extendedfamily is dying. It is now the era ofnuclear familiesSource: Housing Skyline of IndiaHouseholds in India can be classified into three types: nuclear families where one married couple liveswith, in some cases, unmarried siblings; extended families which have more than one married couple fromdifferent generations; and joint families where more than one married couple of the same generation livetogether, which are essentially multi-income families.That the joint family system is out of mode in urban India is clear from the fact that only 8% of thehouseholds belong to this category in India’s top 112 cities. Nuclear households dominate the urbanlandscape with almost 70% of households falling in this category, while extended families take up theremaining 23%, a sizeable share. This reflects, to some extent, the lack of housing capacity toaccommodate nuclear families, a status that upwardly mobile urban Indians seem to aspire to.
Source: Housing Skyline of IndiaLooking at the largest Indian cities, the alpha cities and the cities in the south have a larger proportion ofnuclear families, while those in the west have a greater tendency towards more extended and joint familysetups. Why is that the case? There are likely to be economic and socio-cultural reasons that have not beenstudied in great detail. But the patterns are clear.Households in the south are predominantly nuclear, have fewer children and tend to have higher incomesthan their peers in the north and east. Resource allocation within the households, therefore, takes on a verydifferent character.The western part of India has also benefited from greater economic growth. However, a significantly largershare of households continue to live in extended and joint families. Decision-making in these householdstends to be different, with a greater number of people having a say in major purchases.At the other end, spur-of-the-moment purchase decisions will be less likely, especially in durables that thehousehold members share in the larger and more complex households of western India. At the same time, percapita expenditure in larger households tend to be lower, leading to greater possibility of savings or purchaseof luxuries, depending upon household preferences.As India and Indian consumers change rapidly, there is one churn that has already played out in urban India.The joint family is dead and the extended family is dying. It is now the era of nuclear families.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 15
6. How cities define size of householdsCities that are growingrapidly and have highlevels of in-migrationalso tend to have smallerhouseholdsSource: Housing Skyline of IndiaThe majority of households in the top 112 cities in India constitute between threeand five persons, including children and adults. Yet, at least a quarter of thehouseholds have at least six persons in it, and just 15% consist of one-two peopleliving under one roof.Typically, cities in southern India and larger cities tend to have smaller households.This is partly due to lower fertility rates among women who are better educated andlive in households with higher incomes—both more likely in the south and in largercities. But education and awareness are not the only criteria that determinehousehold size.
Source: Housing Skyline of India Cities that are growing rapidly and have high levels of in-migration also tend to have smaller households. Early migrants tend to be unmarried, and, even if married, may live by themselves. It is only after a few years of living in a new location, and after they establish themselves, do their families join them. It is for this reason that cities such as Allahabad, Kanpur, Srinagar or Gulbarga—with low economic growth and in-migration—tend to have a larger share of large-sized households. Cities such as Faridabad, Kanchipuram and Mangalore that are relatively more dynamic with high economic growth tend to have fewer large households. The size of a household has a huge impact on purchases of consumer goods. Larger households typically spend less on consumer goods on a per capita basis as they are able to share better. For the same reason, larger households are more able to afford better quality of consumer goods. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 17
7. India is witnessing a durables revolutionAs incomes increase,media reach increases,electrification spreadsand education levelsrise, and the demand fordurables expand Per household expenditure on durables (Rs. per annum)significantly Mumbai (Suburban) Wayanad MumbaiSource: Market Skyline of India Kinnaur Nainital Udupi Kolkata Solan Ludhiana North Goa 0 5000 10000 15000 20000 25000 30000 35000 40000 Source: Market Skyline, Indicus AnalyticsConsumer durables include not just white goods, such as refrigerators, air conditioners and cars, but alsogoods such as furniture and kitchen appliances.The largest markets for durables are naturally states with large population. Yet, Maharashtra leads onaccount of higher income, followed by West Bengal and Uttar Pradesh. Interestingly, Kerala and Gujarat,states with considerably smaller populations, make it to the top five states in markets for consumerdurables, with better income levels and infrastructure distribution.At a finer geographical level, the largest markets for durables are naturally in the larger cities, wheregreater incomes and population numbers warrant greater expenditure and also typically ensure better andgreater supply.
However, it is not that the poor do not consume such items. There are many essentials included in the durablescategory, such as utensils, basic furniture, etc. Consequently, total durables expenditure is defined by theincome, size and location of a household, not to mention household preferences.Location, therefore, matters a lot. Areas that have better power availability make it feasible to use white goods;consequently, rural areas tend to have lower penetration of durables for the same level of income.At the same time, even if incomes are higher, smaller homes are less able to purchase more durables. To takean extreme case, a household living in an urban slum would tend to have fewer durables than a household withsimilar incomes in a rural area, or in a non-slum urban area.Similarly, we find that households that have greater education levels and those where there are a greater numberof older persons tend to spend more on durables.Per household annual expenditure on durables, therefore, reflects many of these forces that work in tandem. Goahas among the highest per capita incomes in the country, insignificant slum population, greater education levels,etc. Not surprisingly, it has among the highest durables expenditure on a per household basis.The district of Ludhiana in Punjab comes next, driven mainly by its high incomes in both urban and rural areas.Households in Himachal are not surprising entrants into this league—a large part of Himachal’s youth reside inthe plains, repatriating their surpluses to those at home. The easy availability of electricity, the colder climate andbetter infrastructure, all enable its households to derive the full benefits that durables offer.Mumbai, Kolkata and other larger cities tend to be lower in this categorization despite their higher incomes simplybecause they have large slum populations; hence, on a per-household basis, they show up as lower even thoughthey remain the largest market for consumer durable purchases.As incomes increase, media reach increases, electrification spreads and education levels rise, we expect thedemand for durables to expand significantly. Moreover, as rural roads are able to connect the hinterlands acrossthe country, the costs of supply will also fall.In other words, a great durables revolution is currently occurring in the country, and whether India grows at 6% or8% a year, this spread of household durables is likely to see a continued growth at a rate far greater than overallconsumption expenditure..Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 19
8. Why some cities are getting younger and some are notOne factor that influencesthe number of young peoplein a city is its attractivenessfor migrants and then thereare educationalconsiderations Source: City Skyline of IndiaNew Delhi leads the country in terms of its population of young adults. At four million, the proportion ofpeople between the ages of 18 and 24 in the city is 25%. Mumbai and the urban areas of Thane (thisincludes all satellite towns of Mumbai in Thane district, including Navi Mumbai) follow with 2.6 million and1.8 million, respectively, while Bangalore is fourth with 1.3 million. Interestingly, Kolkata and Chennai donot make it to the Top 10—not just in terms of the absolute population of young people, but also in terms ofproportion (in both cities around 18% of the population is accounted for by the young in the age group of18-24 years). Both Kolkata and Chennai have a larger share of people above the age of 45 than othercities.One factor that influences the number of young people in a city is its attractiveness for migrants—Bangalore’s software industry and Surat’s textile and jewellery industries are natural magnets for the youth.Then there are educational considerations; cities such as Pune, Delhi, and Hyderabad have become hubsfor higher education, bringing in students not just from within their states, but also from other regions.Yet, in most of these cities, as share of total population, the proportion of the young does not exceed 25%.In just six of India’s top 112 cities, this proportion is higher than 30%. On top of the list of the six is Noida, aNew Delhi satellite. It has become the preferred base for students and single people, and is close enoughto New Delhi for them to commute daily.
But what draws the youth to some cities? Educationalopportunities are one factor, but not the most significant. A largenumber of young people in cities popular with the young are notgraduates. These people largely find jobs in the so-calledunorganized sector. Cities with high economic growth (Delhi, Puneand Surat being some examples), and, consequently, a bigger andthriving unorganized sector are, therefore, far more attractive thanothers with much better educational options.Population growth and high fertility rates in the city and in itssurrounding areas are another factor and an important one.Allahabad is a case in point— high fertility rates in eastern UttarPradesh and Bihar have resulted in there being more youngpeople in this area. And Allahabad is among the few large cities inthat part of the country. Bokaro is another such area, and also onewith a distinct advantage—its large mining and basic industry is amagnet for uneducated or marginally educated young people.Similarly, Kohima has the maximum opportunities in terms ofeducation and jobs in Nagaland, and is, understandably, popularwith the young.Smaller cities might have a larger proportion of young people thanbigger ones, but the most number of young people continue to beclustered in the major metros or their suburbs. This is notsurprising. Young people aspire most towards greater options andopportunities, and by their very size, larger cities are able to offerthe largest menu of choices— for income and entertainment. Thepoor infrastructure in India’s smaller cities does not help matters,and this often chases away those who are going to build India’sfuture. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 21
9. People in large cities earn more but save much lessIf India’s top 112 cities areclassified into metros, statecapitals and other cities, we seethat metros on an average havethe lowest savings rate andhighest per capita income Source: City Skyline of IndiaIndia’s high savings rate is touted as a strongdefence against any economic slowdown.These savings help in routing funds towardsgreater investment that in turn fuels growth.However, the spread and sustainability ofIndia’s savings rate is unclear. Many believethat since households in the metros havehigher incomes, they would also be thehighest savers. The numbers do not bear thisout.The disparity in savings rate in urban Indiapoint to many factors that influence suchbehaviour.
People in large cities earn more but save a smaller proportion of their income compared with residents ofsmaller cities. There are many reasons for this.First, larger cities usually have a greater share of slum population that typically save less. Secondly, manylarge cities also have a large number of immigrants who repatriate their monthly surpluses to families,which would otherwise have been saved. Thirdly, larger cities have greater avenues to spend.Better roads lead to more people buying automobiles, and better entertainment options and higherproperty rentals eat away a greater share of incomes. Hence, it is no accident that Mumbai, which hasamong the highest average incomes in India, does not have the highest savings rate.If India’s top 112 cities are classified into metros, state capitals and other cities, we see that metros on anaverage have the lowest savings rate and highest per capita income, while capital cities earn more andsave more than non-capital cities.This is because capital cities typically have a larger share of people in government jobs where incomestend to be higher and more stable for the same level of education as someone in the private sector, exceptat the top levels.However, there are significant differences within state capitals. Chandigarh, for instance, has a differenteconomic structure than, say, Bhopal.Better infrastructure in state capitals, compared with other cities in the same state, has also led to greaterlevels of new economic activities coming up in these, whether it is Lucknow or Patna.The numbers indicate a clear pattern. Out of the top 30 cities, the smaller ones save at a much higher ratethan the larger.Also, there are no north-south or east-west divides. In other words, it is not that people in southern Indiasave more and those in the northern parts of the country save the least.There may be cultural differences across India’s economic geography, but they do not play out stronglywhere savings rates are concerned.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 23
10. The Indian rich- who are they and where do they live? Mumbai and Delhi are homes to very affluent neighbourhoods, in terms of the number of affluent households Source: City Skyline of India – Neighborhood SeriesThe affluent are those who have a large amount of wealth and spending power. This is also most likely tobe reflected in their high-income profile. As is evident, the bulk of the affluent in India reside in urbanareas; it is also likely that they are most concentrated in the larger metros.However, that does not imply that the affluent do not exist in other parts of the country.Large rural landowners, agricultural commodity traders, contractors, public servants, or those living inlarge farms or farm houses in the vicinity of (but not within) large urban centres are spread across India.They tend to travel nationally and internationally, and can access products aimed at them through manydifferent sources.The affluent tend to be very different from those less economicaly fortunate. Affluent households tend tohave lifestyles characterized by lesser physical work, greater expenditure on entertainment, less time spenton day-to-day necessities of household chores and occupation. They also have a different disease profile.
Mumbai and Delhi are homes to very affluent neighbourhoods, in terms of the number of affluent households.As is evident, the Oshiwara in Andheri (West) is the richest neighbourhood in India, in terms of the number of millionaire families, with at least 15,000 households havingbulk of the affluent annual incomes of at least Rs10 lakh. In fact, of the top 20 neighbourhoods inin India reside in India, in terms of number of millionaire families, as many as 18 are in Mumbai.urban areas; it is The top ranking neighbourhoods in Mumbai are Oshiwara, Sahar, Walkeshwar,also likely that they Mahalakshmi, Versova Creek, Chembur West (Golf Club), and Borivali West. The richest neighbourhood (in terms of the number of millionaire households)are most in other major cities are: Rohini in New Delhi (overall rank 9), JP Nagar inconcentrated in the Bangalore (overall rank 42), Adyar West in Chennai (overall rank 48) and Beckbagan-Ballygunge in Kolkata (overall rank 78).larger metros. There are 166 neighbourhoods in the country’s five major cities that have at least 1,000 households having annual incomes of at least Rs10 lakh (out of a total of 626 neighbourhoods which together make up these five cities). Of these, 37 are from Bangalore, 11 from Chennai, 47 from New Delhi, nine from Kolkata and 62 from Mumbai. In terms of total income (sum total of incomes of all the households), the richest neighbourhood in India is Bhandup in Mumbai, with an aggregate income of a little over Rs6,400 crore. The top 15 neighbourhoods are again all from Mumbai. These include Oshiwara, Sanjay Nagar (Chembur East), Matunga-Sion, Sahar, Dadar Plaza, Chembur West (Golf Club), and Borivali West. Rohini, Preet Vihar, Rithala, Greater Kailash II and Greater Kailash I are the neighbourhoods with the highest incomes in New Delhi. The top neighbourhoods in Bangalore, Chennai and Kolkata are Padmanava Nagar, Thiruvanmiyur (East) and Jodhpur Park-Indian Institute of Chemical Biology, respectively. There are 181 neighbourhoods in the five major cities with aggregate incomes of Rs600 crore or more. Of these, 21 are from Bangalore, 10 are from Chennai, 79 are from New Delhi, two are from Kolkata and 69 are from Mumbai.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 25
11. Indian cities should make space for low-cost housingRising slum and squatter settlements in cities is a clear sign that the demand for thelow-cost housing is not being met through formal housing stock. Source: Housing Skyline of IndiaIn the next six years, urban India needs to buildat least 10.5 million houses to meet the demandfor housing that accompanies rising levels ofurbanization. With the financial crisis bringingaffordable housing back on the radar ofpromoters and builders, it is worthwhile toestimate the extent of unmet demand for low-cost houses.As much as 65% of the demand in India’s top112 cities is for houses measuring less than1,000 sq. ft. This translates into approximately6.8 million new homes. Interestingly, about 70%of the demand would be for houses with tworooms or less. This means 7.4 million newhouses need to meet these specifications. Thisis because 90% of the urban households haveincomes under Rs 5 lakh per annum.
Thus, the demand for majority of the urban housing would be in this category.Greater housing demand originates from two sources—those who have arrived earlier and residing inmakeshift tenements, shacks and slums, and those who are expected to migrate into these areas. Therequirements are different. Typically recent in-migrants require smaller areas, but as they stay on, theirfamilies join them and expand, and their incomes and wealth also increase. This translates into requirementsfor marginally larger carpet areas.The cities that have the largest requirement for such housing are those that attract migrants—Mumbai andNew Delhi and their surrounding areas, Bangalore, Pune, Surat, Coimbatore, etc. These cities either saw largemigration in the recent past but are slowly stagnating (for instance, Mumbai), or continue to have great levelsof in-migration (New Delhi, Surat and Pune, for example). Either way, these cities are already bursting at theirseams.The need to expand opportunities in other cities is paramount, as is the need to get a better grip on landutilization within these cities. Typically, government bodies have almost monopolistic control over land, andthis is a serious problem as land management is riddled with bureaucracy and poor governance. What isneeded is a much more aggressive and forward-looking approach that looks at the requirements for each cityspecifically. Ensuring there is regular availability of land for low-cost housing within a city is among the firstand foremost steps.The supply side constraints for provision of low-cost housing are well known and these problems have beenmade worse due to the rapid increase in real estate values.As a result, the largest action in urban housing has been in suburban areas surrounding the large cities— ruralBangalore, Ranga Reddy near Hyderabad, the Gurgaon, Noida, Faridabad and Ghaziabad quadrilateralsurrounding New Delhi, and Howrah and North and South 24 Parganas near Kolkata are well-knownexamples. The bulk of new housing is occurring on converted agriculture land around these cities.This need not have been the case, had local governments been more responsive to emerging requirements.Unfortunately, unplanned and unstructured development is a hallmark of urban India and is unlikely to changevery soon.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumertrends and markets. 27
12. Beta cities - on the thresholdIndia’s tier II cities have benefited to a large extent from the boom of the past fewyears but need to get their act together to draw investment and attention away fromthe tier I cities. Source: City Skyline of IndiaJust as emerging economies are those thatstand on the threshold of advancing into the bigleague, there are emerging cities in India: thecities that have the potential to match the largercities in market size.Indeed some among them will become elitecities eventually. These Beta cities, as opposedto the Alpha top-tier cities of India, have diversecharacteristics. Many of these cities are statecapitals such as Jaipur and Lucknow, benefitingfrom better infrastructure and public services.Cities such as Jamshedpur and Faridabad havebeen industrial centres for decades now, butseemed to be content giving precedence toother newer centres that have grown. Somesuch as Indore have been threatening to make itbig for many years, but never quite managed it.Some others such as Kanpur have somehowlost their way.
India’s tier II cities, are among the largest urban markets and can at anytime breakinto the elite club the way Surat and Coimbatore have.Cities such as Thane and Thiruvallur have boomed, thanks to their proximity to metros. Except for Kanpur, allhave had double-digit, or close to that, annual growth in their market size over the past two years.Whatever be their current status, these Beta cities, or India’s tier II cities, are among the largest urbanmarkets and can at anytime break into the elite club the way Surat and Coimbatore have. They havebenefited to a large extent from the boom of the past few years but need to get their act together to drawinvestment and attention away from the tier I cities. What is needed is a concerted plan of action to improveinfrastructure and governance.These cities will over the next few years grow in importance and in a range of areas. Many of these citieswere in the past specializing in a few sectors and industries; but with growing population and large-scale in-migration, they are steadily growing in the range of activities that are undertaken within and in their vicinity.The bulk of these cities have quite poor public infrastructure (since serious urban investment in the past hasbeen limited to state capitals); but that is already changing rapidly. Supply always finds a way to meet thedemand, even if the governments are unresponsive. High incomes in Indore, for instance, and availability ofcredit led to high auto demand; when the urban government could not provide that, residential areas startedto put up their own roads. Residents of Patna are working with the government for improved law and order,the industrial community in Ludhiana is working together to improve the city, and there are many suchexamples. Cities such as Coimbatore and Surat have in the past already shown how cities and administrationin the second tier towns of India are slowly but steadily creating urban communities that will one day totallychange India’s urban landscape.These cities currently are much smaller than the top metros, but many have per capita incomes that arehigher than those in the top metros, and most of them have sustained double-digit growth. It is only a matterof time before they become important metros in their own right.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 29
13. Finance institutions need to focus on expanding market On average, only 16% of Indian households have taken loans from institutional agencies-- commercial banks and cooperative societies. Financial inclusion is a stated policy of the government and the central bank, but it will take some concerted effort to bring more of the population into the network of formal financial services. The current spread of formal finance network is quite inadequate. At least 60% of Indians do not have access to the banking system. Even though the average number of people that a bank branch serves is around 15,000, there are six states where each branch serves around 20,000. These states are mostly in the east. The inadequate spread of banking is reflected in the data on credit as well. On average, only 16% of Indian households have taken loans from institutional agencies—commercial banks and cooperative societies. Non- institutional agencies, including moneylenders, friends and relatives, have a higher reach at 22%. Again, sharp regional differences show up, with Kerala coming up high on indicators of banking and finance. As many as 14 of the top 20 districts that have access to institutional credit are from Kerala. The districts of Kottayam, Kannur and Idukki top the list, with at least 65% of households taking loans from institutional agencies. Kerala, however, has some peculiar characteristics that help explain this widespread integration with the formal financial system—high literacy and educational levels, well-connected rural areas as density of population is high, and remittances from overseas migrant workforce. All these make for an Source: Indian Financial Scape environment more conducive towards higher access to formal finance.
At the other end of the spectrum are districts where less than 1% ofhouseholds have taken credit from institutional agencies. These are mostlyin Assam, Manipur, Meghalaya, Arunachal Pradesh, Jammu and Kashmirand Mizoram, where the banking system is extremely underdeveloped givenconstraints of a low density of population, poor connectivity and law andorder concerns.In regard to the penetration of non-institutional loans, the focus shifts fromKerala at the top end. Here, the top 24 districts have penetration rangingfrom 50-53% and are mostly located in Tamil Nadu and Andhra Pradesh.These are the states where microfinance and self-help groups have spreadinto the hinterland.The districts languishing at the bottom remain the ones from the hill states.In fact, 64 districts have less than 7% penetration of non-institutional loans.Of these, two are from Andaman and Nicobar, 13 from Arunachal Pradesh,14 from Jammu and Kashmir, seven from Meghalaya, eight from Mizoram,four from Sikkim, 13 from Uttarakhand and three from West Bengal.At a broader level, there is a clear need for better services in the hill states.The question remains whether the government measures of bankingcorrespondents, using post offices, etc., will reap dividends in expanding thefinancial network in areas where topography and socio-economiccharacteristics remain tough barriers to overcome.Essentially, there are two clear characteristics of household access tofinance. One, the bulk of the population is financially underserved and relyon informal lending. Two, non-institutional agencies have together achieveda much higher penetration than institutional agencies. The need of the houris for financial institutions to focus more on expanding the market ratherthan flog the existing ones. And for this, innovative use of technology justmight be the way to go.Demand Curve is a weekly column by research firm 31Indicus Analytics Pvt. Ltd on consumer trends and markets.
14.New manufacturing sectors in eastern IndiaThe phenomenal growth in the Jharkhand and the Chhattisgarh has seen the shareof manufacturing in their GDP rise dramatically as they have attracted industrialprojects Source: District GDP of IndiaIndia’s manufacturing sector has been coming off itshigh growth path since the first quarter of 2007. This graph shows the share of various states in India’s manufacturing output and their income fromLarge parts of India remain outside the impact of thisdownturn, as their economies are largely related to the manufacturing activity in 2007-08agricultural or tertiary sectors. In fact, 10 states withthe highest manufacturing sector GDP account for70% of the manufacturing output in the country.Maharashtra, Gujarat and Tamil Nadu are India’s topthree industrialised states, and while the top eightpositions have remained static since 2001, two newstates, Jharkhand and Chhattisgarh have moved upinto the top 10, displacing Rajasthan and Punjab,respectively.The phenomenal growth in these two states, sincetheir inception, has seen the share of manufacturingin their GDP rise dramatically as they have attractedindustrial projects. Looking at the share of incomethat originates in the manufacturing sector, these twostates have shown higher levels than Maharashtra,Haryana and Tamil Nadu.
The phenomenal growth in the Jharkhand and the Chhattisgarh has seen the shareof manufacturing in their GDP rise dramatically as they have attracted industrialprojectsIt is no accident that Chhattisgarh and Jharkhand have had high manufacturing growth. Beingnewer and smaller states, they responded more rapidly than their larger—and in some casesbetter endowed—neighbours. The result is for all to see. As Orissa, eastern Madhya Pradesh,Bihar and West Bengal get their act together, large-scale manufacturing based on primaryinputs will rapidly enhance incomes and lifestyles in eastern India.Currently, there are few large urban markets in eastern India. After Kolkata, there is Patna, adistant second, and then, Bhubaneswar, an even more distant third. Asansol, Dhanbad, Ranchiand Raipur continue to be small markets.But this is changing. The emerging trends can already be seen. For instance, many of the citiesin eastern India have not gone through the realty downturn that has characterized much ofurban India.With the slowdown, which districts would be affected the most? Some are the standardmanufacturing heavyweights in the country—Surat, Bangalore, Pune, Ahmedabad, Mumbai,Chennai, Coimbatore, etc. The manufacturing growth centres of the 1990s and 2000s werepredominantly in the west and south and had an international focus.But the new growth centres are different. Two districts, that have become part of the top 10manufacturing districts in recent years are Gurgaon, which has attracted large investments inauto manufacturing, and Raipur in Chhattisgarh, which has two industrial growth centres at Urlaand Siltara.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumertrends and markets. 33
15. Changing lifestyles and urban landscape of Indian citiesAs marketers look increasingly at small towns, they will need to differentiatebetween the attributes of cosmopolitanism and westernizationIndia is changing rapidly in many different waysand its cities are changing even more rapidly.Typically, we find that most new technologies,attitudes, fashions, etc., come about first in themetros, then spread to other larger cities, andeventually encompass the entire urban landscape.Classifying cities according to their market sizesinto four categories, we have 10 alpha cities,which include the four metros and Hyderabad,Bangalore, Ahmedabad, Pune, Surat andCoimbatore, the cities that are the first to adoptchange.Looking at one of these new changes—theemergence of the mall—we find the highestconcentration of mall users in these cities. Withthe largest urban markets, high incomes and Source: City Skyline of Indianuclear families, these cities have been idealplaces to usher in the mall culture in India.
Alpha cities are also the most open to changing lifestyles and more westernized and cosmopolitan in characterthan other Indian cities. However, there are a lot of variations. For instance, Surat and Coimbatore are amongthe largest markets, but have low westernization levels. Similarly, the cosmopolitan character tends to begreater in larger cities, but is not necessarily high in all large cities, where cosmopolitanism is defined in termsof the share of people communicating in different languages—not including English.Kolkata is a large city, but not as highly cosmopolitan as Nagpur, a beta city. Dhanbad is another gamma citywhich is not usually thought of as highly westernized or cosmopolitan, yet as the coal capital of India and itattracts people from across the country. Various dialects of Hindi, Bengali, Oriya, etc., are some of the morepopular languages there.As marketeers look increasingly at small towns, they will need to differentiate between the attributes ofcosmopolitanism and westernization. Chandigarh, for instance, is quite westernized, but not really acosmopolitan city. Its markets are, therefore, characterized not only by English signages, but also by a highlyhomogeneous set of products typically consumed by Hindi- and Punjabi-speaking communities.Nagpur, on the other hand, has communities that have retained their historical characteristics—Newspapers inHindi, Gujarati, Oriya, and not just Marathi and English, have significant sales in that city. Surat started off as apredominantly Gujarati city, but large numbers of migrants from the Hindi belt, Orissa and some of the othereastern states are rapidly changing its character. Surat is quickly becoming a cosmopolitan city, but it is neithera highly westernized city nor, given the trends, does it appear that it will become one in the near future.The economic activity that has pushed the growth of a city has long determined its character. Bangalore’s highhuman capital-oriented growth required highly educated people from across the country. In the last century,this could only be met through those who had been taught in English. A delta city, Varanasi’s growth alsorequired human capital, but religious tourism required a different kind of expertise, hence despite the presenceof Banaras Hindu University, its migrants took on a non-westernized character.Gurgaon’s high-value manufacturing growth required greater skills, but Dhanbad’s mining activities couldwelcome those who were uneducated and unskilled. Consequently, the two markets are also highly different.They both have people from different communities and regions, but one set are better educated, better paidand English-speaking; the other, less educated, less paid, and more comfortable with their mother tongues.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 35
16. For poor migrants, technology to help in financial inclusionTwo states from where migration is relatively high and remittances a major source ofincome are Kerala and Bihar. Interestingly, the two stand at the opposite ends of theIndian development landscapeMigration in search of work ensuresthat cities maintain their highgrowth rates. When people moveout of their homes for work, theirfamilies often stay behind, living onremittances sent by their workingrelatives.Two states from where migration isrelatively high and remittances amajor source of income are Keralaand Bihar. Interestingly, the twostand at the opposite ends of theIndian development landscape.They have the highest and lowestliteracy rates in the country, 90.9%and 47%, respectively, according to Source: Indian Financial Scape2001 figures.
The disparity in such a basic indicator as literacy level translates into a significant difference in the skill set ofthe labour force that goes out and sends back money. Kerala, with its educated workforce and highdevelopment indicators, has traditionally sent its labour either abroad or to other states in higher skilled jobs.Bihar, on the other hand, has labour moving to other states in low-skilled jobs, primarily as farm andconstruction workers. In fact, looking at the districts where at least 30% of households receive income fromremittances, two insights emerge. The first is that migration can be from both high-income and low-incomedistricts, and that there is a difference in the reasons behind migration. Himachal Pradesh and Kerala bothfigure in this list. Both states have achieved a lot on the developmental front such as providing access toeducation, health and raising connectivity of villages through a good network of roads.The states differ highly in topography, density of population and type of workforce. Hamirpur in HimachalPradesh, for instance, has many working in the defence services or working in the plains. There is also aconsiderable seasonal migration from the state during the winters as farm labourers move out to work inPunjab and Haryana. Districts from low-income states such as Uttar Pradesh and Bihar also rank in this list,where households in the throes of poverty send out their men to bring back enough for sustenance in thevillages. Since the nature of remittances is so different for low-income and high-income districts, integrationwith the formal financial sector also varies. Districts from Kerala and Himachal Pradesh have a higherdependence on institutional sources of credit, compared with those from Uttar Pradesh and Bihar. The latterhave low penetration of banking services.Thus, the poor and the underprivileged who migrate to other states are rarely able to use modern bankingfacilities. This affects their ability to save in banks, which, in turn, affects their ability to avail credit from theseinstitutions. In other words, growth in microfinance notwithstanding, modern banking institutions are generallyunable to service those who most require them, even if those people have the wherewithal to save and invest.The poor migrant is one such segment. But, increasingly, new technologies are expected to come to their help.With the onset of mobile banking and money transfers through mobile phones, the migrants would be able totransfer funds to families back home even if banking facilities are sparse in those areas.With urbanization expected to increase rapidly, about 10% of India’s population is expected to migrate to citiesfrom rural hinterland in the next decade. Since most will send money back in their initial years, rural India isexpected to gain from a large and dispersed source of funds. And new technologies will enable what the banksare missing out on. 37Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
17. India needs cities network for easy rural urban shiftIndia’s richest city Mumbai’s per capita income is $2,675 (Rs1.28 lakh), lower thanthe Chinese national average of $3,529India is set to be the fastest growingeconomy in 2010, surpassing even China,according to the World Bank. Meanwhile,Mumbai dreams of becoming anotherShanghai and the Bandra-Worli sea link issupposed to be one of the many steps inthat direction.Yet, India has a long way to go to catchup with China. India’s richest cityMumbai’s per capita income is $2,675(Rs1.28 lakh), lower than the Chinesenational average of $3,529.Rising incomes are associated withurbanization and India has been laggingbehind on this count. The pace ofurbanization has actually slowed in thecountry. During 1971-81, the annualaverage rate of urbanization was 3.79%,but declined to 3.09% between 1981 and During 1971-81, the annual average rate of urbanization was 3.79%, but1991 and to 2.73% between 1991 and declined to 3.09% between 1981 and 1991 and to 2.73% between 19912001. and 2001.
Last year, China’s urban population crossed 600 million, 46% of its population; two decades ago, people in cities comprised just20% of the total. According to China’s ‘Blue Book of Cities’, the country has 116 metropolises, with nearly a million people in each.India has 62.While such gigantic cities do not have to become an objective of Indian planning, there is no point in going the other extreme andromanticizing rural life. The average population in an Indian village is 1,161 persons, that is, roughly 200 households. This does notmake the village economically viable as an independent entity. In fact, 91,555 of India’s villages have a population of less than 200,making provision of basic amenities a difficult and expensive proposition.More importantly, Indian cities are characterized by some of the worst infrastructure and public services in the world. This is natural,given that we typically spend insignificant amounts to upgrade and maintain urban India.The Jawaharlal Nehru National Urban Renewal Mission seeks to correct this problem. However, it currently covers only 60-odd largecities. India has thousands of large and small cities. While small villages are economically unviable, very large cities have their ownset of problems, with concentrated pollution affecting health and life of its citizens, high land values contributing to sub-human livingconditions in slums, etc. India needs to build its smaller cities, where most of its urban population will eventually reside.Unless there is a rural-urban movement facilitated in a cohesive manner, the benefits of urbanization will be lost to the vast majorityof the population. Productivity and growth of the economy will also suffer.Southern India is the most urbanized. Incomes are, therefore, higher and development more widespread than in the north and theeast.If we rank Indian cities by per capita income, nine cities from this region come in the Top 25, seven from the western states, fivefrom the north and four from the east.Interestingly, India scores over China in the spread of its population and urban areas across its land area. For all its high growth,China still has a problem with regional disparity. Its eastern belt is way ahead of the interior regions and the top rich cities all lie onthe coast.India has similar problems of imbalances, but the differences are not as large. In India, the western and southern states rank muchhigher than the northern and the eastern ones. The top four richest cities are all south of the Vindhyas and two are from Maharashtra. They are followed by Ahmedabad, Surat and Delhi, which has the seventh highestpercapitaincomeamongcities. Since eastern India is growing rapidly in the last few years, it is expected that more and more cities in the east will cross the smallcity-large city divide. Ranchi, Raipur, Dhanbad and scores of smaller urban centres are growing rapidly on the back of large-scalemanufacturing investments in these areas.However, this growth will be constrained if there is no even allocation of resources from the Centre to these cities. For India needslarge cities, but even more than big cities, it needs a well spread out network of cities that will enable the rural-urban transition ofworkforce more effectively.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 39
18. Rural markets help makers of consumer goods grow steadily States where sale of personal and home care products is high are those with either higher incomes or large populationsOne sector that continued to gain steadily despite the economicslowdown was the market for personal and home care products. Areason for bucking the trend was these companies have discoveredrural markets, which now contribute a little more than half the totalsales for such products in the country.States where sale of personal and home care products is high arethose with either higher incomes or large populations. Maharashtrahas the highest share of 16%, with high disposable incomes in theMumbai-Pune belt and a large population. Andhra Pradesh is seconddue to its rapid growth in urban incomes, along with West Bengal,where population along with steady income growth in the 1990s isthe predominant factor for high sales. Uttar Pradesh, the mostpopulous state, comes in at fourth with 8% share of the market.District-wise analysis shows that the largest concentrated marketsfor these products are naturally in the large metros or their suburbandistricts. But Medinipur in West Bengal, on account of its largepopulation, stands out. The other is Surat in Gujarat, which also hasa rapidly growing population as well as income. Both are easy entrypoints for sales networks.In recent years, the list of states where growth has exceeded 10% ayear since 2006-07 also includes Orissa, Chhattisgarh andUttarakhand. But these markets are still small. Gujarat, on the otherhand, is a large market, and also tops growth performance.
The main reasons for the growth in rural areas in the recent past have been improved incomes, goodmonsoons and the government’s rural employment guarantee programme, among others. As rural marketshave now been perceived as untapped high-potential markets, firms are adapting their distribution networksand marketing strategies to increase rural penetration.Traditionally, rural incomes and expenditures show high volatility due to the vagaries of rainfall whichdetermines most of India’s farm output and volatility in prices of farm products. But this is changing slowlybut steadily.Agriculture is increasingly accounting for a lower share of rural incomes. Repatriations from migrants,increased role of the services sector and an increased role of unorganized and organized manufacturing aresteadily chipping away at the overall share of agriculture incomes in rural areas.Also, government interventions such as the National Rural Employment Guarantee Scheme—thegovernment’s flagship welfare programme that ensures 100 days of employment to a member of a poor ruralhousehold—greater agriculture credit, increased role of groundwater for irrigation and governmentpurchases of farm products at predetermined prices have helped in reducing volatility in rural incomes.Rural households today depend on more than one source for their incomes. An individual may work in a farmor at a construction site or migrate to an urban area temporarily. Other individuals within the household maybe involved in home-based work. This diversification helps stabilize household purchases.However, agriculture incomes still have large enough multipliers in rural areas to affect rural purchases ofpersonal and home care products. The current monsoon has not yet showed all its cards, but it has heldback enough for the makers of these products to be concerned.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 41
19. East India set to make swift progressOrissa, Chhattisgarh and Jharkhand have returned growth rates higher than thenational rate since 2000-01While it is well known that theeastern states of India havebeen lagging behind the rest ofthe country for decades, it isless appreciated that thesestates have been reinventingthemselves in recent years.
Orissa, Chhattisgarh and Jharkhand have returned growth rates higher than the national rate since 2000-01and, ironically, the global slowdown may in all probability benefit this region by raising its relative importancein the country.The eastern states comprising Bihar, Jharkhand, West Bengal, Orissa and Chhattisgarh have economiesthat are still making the transition away from the primary sector.They are now all set to reap rich dividends in the current scenario, where domestic markets are beingrelooked at as sources of growth, agriculture is on the verge of a technological revolution and India’s export-dominated centres are no longer as attractive to investors.With the National Rural Employment Guarantee Act implemented in the last couple of years and higheragricultural prices, eastern India’s predominantly rural economy has benefited. Construction is anotherbooming sector as various infrastructure projects are being undertaken; in fact, Bihar has reported aphenomenal average annual growth of 46% in construction over the period 2004-05 to 2006-07.Moreover, with the government stimulus packages aiming at increasing infrastructure investment, demandfor steel, cement and heavy engineering will increase, and these production units are largely in the easternregion.One force that favours eastern India in the long term is human capital/workforce. 43
One of the reasons why southern and western India have been leadingIndia’s growth is that they have had higher shares of population in theworking age group. But with higher fertility rates, the eastern states,which have reached the levels in the western states already, are all setto catch up with increased share of working population as in thesouthern states by 2016. According to the Registrar General of Indiaestimates, the population in the working age group of 15-59 willincrease from 58.4% of the total in 2001 to about 66% in 2016 in theeastern states.Clearly, for a bright future, it is imperative that the state administrationsbe responsive to emerging opportunities. This process, however, hasalready begun. Governments in Bihar, Orissa and Chhattisgarh havemade positive moves to improve governance and West Bengal hasmade a beginning in trying to restore its past glory in manufacturing.But there are many challenges ahead. The poor quality of governancehas contributed to an increasing Naxalite problem. These groups areactive, well networked and spread. Go a few kilometres beyond theboundary of most cities, and Naxalite activity is evident. There is adeeply entrenched distrust of market forces and the opportunities thatthey could provide. And for good reason. A poor ethical record,exploitation of the uneducated and illiterate, misuse of power, brokenpromises and so on. have been the tools used by small traders, andlarge companies, not to mention the government. 44
Markets cannot function in a society that is ruled by distrust and suspicion. And markets cannot functionwhen the state cannot ensure security of life or property. Rebuilding trust is a necessary precondition for thefull potential of the east to be realized.And so there is a long way to go, especially in improving the urban centres of growth. Kolkata and itssurrounding areas—Raipur, Asansol and Ranchi—are the only urban markets that rank within the top 40urban markets in India.These markets are relatively smaller and are dependent to a high degree on cash-based transactions; creditis difficult to obtain for both businesses and consumers. But do not count these cities out. For it is a richregion where investment worth hundreds of thousands of crores of rupees will rapidly come in once theproblem of distrust in markets and state is addressed.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 45
20. The North’s geography of growthWhile Chandigarh tops the chart with high growth and the highest per capita incomein the country, Madhya Pradesh (MP) is at the bottom of the pile, with less than 5%growth this decadeMost north Indian states have turned ingrowth performances lower than thenational average this decade. Despitethe huge population advantage, thesestates have lost out to the west and thesouth, which have led India’s economicgrowth.While Chandigarh tops the chart withhigh growth and the highest per capitaincome in the country, Madhya Pradesh(MP) is at the bottom of the pile, withless than 5% growth this decade. Inrecent years, growth in Punjab hasslowed as diversification of economicactivity has not been sufficient and farmproductivity has been stagnating. On theother hand, Haryana has made full useof being partially included in theNational Capital Region (NCR) to moveinto the manufacturing and servicesectors..
Two smaller states have done extremely well inrecent years. One is Uttarakhand, which has goneahead of its parent state Uttar Pradesh (UP) to growat levels higher than the national average. The otheris Himachal Pradesh, which has become the Keralaof north India. Despite a predominantly ruralpopulation and limitations of topography, it hasimproved connectivity and social indicators.Unfortunately, the low-income states of UP, MP,and to a lesser extent Rajasthan are still to get theiract together.According to market size, Delhi leads the cities inthe north with its large population and a largemiddle class. Though Chandigarh has a per capitaincome twice that of Delhi, the smaller populationgives it second place in northern urban markets.Though the large urban markets come from all thelarge states in the north, if we look at clusters ofcommercial activity, only two stand out—the NCRand the cluster formed by Chandigarh, Ludhiana,Rupnagar and Ambala.Looking at two interlinked parameters,unemployment rates for 2008-09 and theemployment growth rate from 2006-07 to 2008-09,the top cities are Panipat, Gurgaon, Faridabad,Noida, Delhi, Jaipur, Hisar, Chandigarh, Ludhianaand Ghaziabad. 47
The geography of growth and opportunities in the north appearsto be fairly clear—take the route from Delhi to Jaipur andwhatever comes along the way is where opportunities areimproving. Next, visit Chandigarh and its vicinity and growthalong the route is more than anywhere else. UP and MP,however, have not been able to build such an urban network.Kanpur, north India’s industrial hub at one point, has nowbecome a garbage dump with high pollution levels. Lucknow,despite having the best infrastructure in the state, hasn’t beenable to emerge from political intrigue. Varanasi and Allahabadcould have become great knowledge and educational centresbut did not.It is the same story in MP—Indore and Bhopal were unable tocash in on the opportunities that came from liberalization, andGwalior and Jabalpur have retained their sluggishness.The cities of Rajasthan, however, are changing more rapidly.With the Delhi-Mumbai corridor going through some of themajor cities in the state, Jaipur is the biggest gainer, and withthe availability of water in Jodhpur and its vicinity thanks to acanal bringing in water from Punjab, and a relatively proactivegovernment, both incomes and prospects appear better thanMP or UP.Demand Curve is a weekly column by research firmIndicus Analytics Pvt. Ltd on consumer trends and markets. 48
21. NE India - small, but with great prospects aheadThis region is moving into the national spotlight, with some states performing betterthan the national average both in terms of economic growth as well as socio-economic progressStates in the North-East (Assam,Arunachal Pradesh, Meghalaya,Mizoram, Manipur, Nagaland andTripura, and we also include Sikkim)have not been typically at the top of themind of marketing professionals. Butthis is about to change. The region hasbeen grappling with problems ofgeography and ethnicity for many years,but with liberalization and technology,high economic growth has beenunleashed in the region as well.Steadily, this region is moving into thenational spotlight, with some statesperforming better than the nationalaverage both in terms of economicgrowth as well as socio-economicprogress.
While markets in the North-East are much smaller than other regions in India, this region has been attractinginterest recently as communication and transportation links improve. Its economic structure is also changing.The region has traditionally been more primary sector dependent than the rest of the country—but this willchange rapidly in the coming years. The Union government has been trying to build a strongermanufacturing base in the area, but its distance from demand centres in the rest of country and the lack ofclose access to a port have been impediments.Investment has been coming in on various fronts in recent years. Nagaland is all set to have the North-East’sfirst special economic zone (though it is unlikely to be a major success), an agro-processing complex thatwill build on the state’s remarkable agricultural and horticultural achievements in recent years. Last April, thebiggest steel plant in the North-East started operations in Tripura, while JSW Steel Ltd is expanding retailoutlets all over the region as well. Meanwhile, Meghalaya has become a cement production hub as itslimestone deposits have attracted cement manufacturers, thanks to the latest boom in construction. TheAsian Development Bank (ADB) recently put up a $200 million (Rs978 crore) loan for improving basicinfrastructure in the capitals of these states—the first time that ADB has shown interest in this region.. 50
The North-East is a large region, but constitutes a small share of total consumption expenditure. Its largestand most important cities tend to be capitals that have been built and sustained through governmentexpenditure, much of it flowing from the Centre. Given the low population density and topography, consumermarkets are scattered and small in size. Only two cities make it to India’s top cities in market size—Guwahatiat rank 53 and Agartala at rank 97.Of the other major cities, Shillong and Imphal have expenditures of less than Rs2,000 crore, and Aizawl,Itanagar, Kohima and Gangtok all have market size of less than Rs1,000 crore. These are not large marketsyet, but they will grow steadily. There are many reasons for that. First, the region’s strategic location makes itimperative for the Indian government to develop it as a major hub. It is at the centre of a triangle formed bylarge markets in the rest of India, southern China and South-East Asia. It is only a matter of time beforeBangladesh and Myanmar will allow transportation networks to West Bengal, South-East Asia and the Bay ofBengal.Moreover, the aspirations of the youth in the region, like in the rest of the country, are oriented towards joiningthe international mainstream. Already, the region’s educational attainments surpass those of manyeconomically advanced states of India. Many more higher education and professional institutions are beingset up, and quality centres of higher learning are now not just limited to Shillong.Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends andmarkets. 51
22.Tier II cities can break into the elite club any time Just as emerging economies are those that stand on the thresholdThese cities currently are of advancing into the bigger league, there are emerging cities inmuch smaller than the top India, the cities that have the potential to match the larger cities inmetros, but many have per market size. Indeed some among them will become elite citiescapita incomes that are eventually. These beta cities, as opposed to the alpha top-tier cities of India,higher than those in the top have diverse characteristics. Many of these cities are statemetros, and most of them capitals, such as Jaipur and Lucknow, benefiting from betterhave sustained double digit infrastructure and public services. Cities such as Jamshedpur and Faridabad have been industrial centres for decades now, but havegrowth seemed to be content giving precedence to other newer centres that have grown. Some such as, Indore have been threatening to make it big for many years, but never quite managed it. Some others, such as Kanpur, have somehow lost their way. Cities such as Thane and Thiruvallur have boomed, thanks to their proximity to metros. Except for Kanpur, all have recorded double-digit or close to that annual growth in their market size over the past two years. Whatever be their current status, these beta cities, or tier II cities, are among the largest urban markets and can any time break into the elite club the way Surat and Coimbatore have. They have benefited to a large extent from the boom of the past few years, but need to get their act together to draw investment and attention away from the tier I cities. What is needed is a concerted plan of action to improve infrastructure and governance.
These cities currently are much These cities will over the next few years grow in importancesmaller than the top metros, but and in a range of areas. Many of these cities were in the pastmany have per capita incomes specializing in a few sectors and industries; but with growingthat are higher than those in the population and large-scale in-migration, they are steadily growing in the range of activities that are undertaken within andtop metros, and most of them in their vicinity. The bulk of these cities have quite poor publichave sustained double digit infrastructure (since serious urban investment in the past hasgrowth been limited to state capitals); but that is already changing rapidly. Supply always finds a way to meet the demand, even if the governments are unresponsive. High incomes in Indore, for instance, and availability of credit led to high auto demand; when the urban government could not provide that, residential areas started to put up their own roads. Residents of Patna are working with the government for improved law and order, the industrial community in Ludhiana is working to improve the city, and there are many such examples. Cities such as Coimbatore and Surat in the past have already shown how tier II towns are slowly but steadily creating communities that will one day totally change India’s urban landscape. These cities currently are much smaller than the top metros, but many have per capita incomes that are higher than those in the top metros, and most of them have sustained double digit growth.It is only a matter of time before they become important metros in their own right. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 53
23. Demand Curve - The rapidly growing stable markets ofsouthern IndiaGood Governance, and high levels of public security have contributed to thesuccess of the southern statesAbout 30 of India’s top 112 cities are located inthe four southern states—Andhra Pradesh,Karnataka, Kerala and Tamil Nadu; but the bulk ofthem are in India’s most urbanized large state,Tamil Nadu. About half of the state’s populationlives in cities and most of these cities have astrong manufacturing base. While Chennai as thestate capital is the financial and commercial hub,Thiruvallur also has a large tertiary sector. Thesetwo cities with their higher incomes and diversifiedactivity rank at the top of the list of urban marketsin the states and among the top 25 of the country.Others that make it to the top 50 urban markets ofIndia include Kancheepuram, Kanyakumari,Madurai and Salem. Kancheepuram, the city of athousand temples and silk saree centre, has alsoattracted investment from large production houses—Ford, St Gobain and Hyundai, etc., while steelcity Salem is also a major textile centre.
From Karnataka only Bangalore makes it to the top 50 urbanmarkets and Kerala’s Thiruvananthapuram and Kochi rankhere. Four of the top 50 urban markets are from AndhraPradesh: Hyderabad and areas surrounding Rangareddy,Visakhapatnam and Vijayawada.Despite their high ranking in India’s urban markets, it wouldnot be correct to place all four states of the south in the samebasket—each has a distinct socio-economic identity. WhileTamil Nadu has the highest urbanization level, Kerala has oneof the lowest. Yet, incomes in Kerala are high, with a highlyliterate and skilled population bringing in remittances fromabroad. Rural incomes in Kerala are also higher than thelevels seen in other states. In fact, in terms of character, it isdifficult to distinguish between rural and urban markets inKerala. Karnataka and Andhra Pradesh, both larger states,have significant regional imbalances within and urban clustersare few and concentrated.Karnataka’s urban markets are highly concentrated in thesouthern part in and around Bangalore. The region aroundMangalore ranks a very distant second in the state. Some ofthe northern parts of Karnataka are not very different fromparts of Bihar and UP or even sub-saharan Africa on manysocio-economic parameters. The same is true for the regionaround Dharmapuri in Tamil Nadu. But all in all, urban centresare much better spread in south India. Moreover, they are wellnetworked with surrounding rural areas through a relativelywell-maintained rural road network. This ensures that somepart of the higher value demand from rural areas is fed byurban areas in these states. 55
Two factors that have contributed to the success of southern statesare good governance and high levels of public security. Law andorder has been maintained while bureaucracy has delivered onmany fronts, relative to the northern states. Land reforms have alsobeen more successful in Tamil Nadu and Kerala than in otherstates and a more decentralized government has helped. Moreover,despite being highly dependent upon the international economy,these urban centres have managed to bear the internationaleconomic slowdown well—this indicates that these are not onlyrapidly growing markets, they are also very stable. Manufacturing,services and agriculture have all benefited from good governanceand higher education in the region.Interestingly, though the south will remain an important source ofurban consumption, it would not be very different in character fromother parts of India. It is becoming fairly clear that socio-economicor cultural differences are not affecting the size or character ofurban consumer markets to a large extent. High levels of consumerexpenditure are seen in Chennai—what was considered by many tobe a conservative spender. Hyderabad shows levels ofconspicuous consumption, not very different from New Delhi.Bangalore’s large professional class behaves not very differentfrom that in Mumbai, where consumption expenditures areconcerned.In other words, though all cities are different, with different culturaland socio-economic characteristics, consumption characteristicsare not that different once we account for the incomes, educationand socio-economic characteristics of the individual consumer.Demand Curve is a weekly column by research firmIndicus Analytics Pvt. Ltd on consumer trends and markets. 56
24. Demand curve - Who saves most in urban India?When there is high uncertainty aboutincome flows, precautionary savingstake precedence over satisfaction ofpresent consumption needs India’s savings, at around 33% of gross domestic product (GDP), are among the world’s highest. Of this, households save about two-thirds or 22%, much higher than that in most countries. But there are large differences between states. India is known for its stereotypes— south Indians are said to save a larger share of their income, while north Indians are believed to be spendthrift. But looking at urban incomes, this is not justified in practice. The only southern state in the top five rankings on urban savings rates is Kerala, which has significant remittances from outside the state. Nagaland, which has seen high income growth since 2000 at 9.2% per annum, tops the chart of urban savings rate. Bihar is also among the top saving states in India when we look at household savings as a share of household incomes. There is no cultural issue here, but strong economic reasons why some locations have greater savings than others. Nagaland has high urban incomes and Bihar has low credit options but poor governance and lack of supplementary laws prevent creditors from giving credit; households, therefore, need to save more to buy assets such as homes or land. Both states have law and order problems that also affect consumption options. When there is high uncertainty about income flows, precautionary savings take precedence over satisfaction of present consumption needs.
At the district level, on a per capita basis, we find that high savings districts are spread all over the country. Gautam Buddha Nagar in Uttar Pradesh to Vadodara in Gujarat, to Tiruvallur in Tamil Nadu to Singhbhum in Jharkhand—we find many districts that have a high propensity to save on a per capita basis.When there is high uncertainty What are the key factors that determine savings? Firstabout income flows, is, incomes, and some locations are growing moreprecautionary savings take rapidly than others. Second, available avenues to spendprecedence over satisfaction of —those that have better security of property and life,present consumption needs and have better infrastructure, tend to score well on this count. Third, availability of avenues to save—locations that have a better financial sector infrastructure would tend to do better. Fourth, pre-committed expenditures—locations where there is lack of credit availability, or those where the dependency ratio (dependants per earner) is high, tend to perform poorly on this count. Fifth, a combination of these is then supplemented by available return or interest to impact savings at the household level. Hence, the current environment of uncertainty and economic slowdown would affect different locations differently. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets.