India's Near Middle Class- A Huge Opportunity to Bing on



As the middle income & near-middle income households continue to expand in India, demand for retail, consumer goods, electronics, FMCGs, etc. will also grow vigorously- offering tremendous opportunities for global & local ventures. The recent liberalization of the FDI in retail & and initiatives to boost liquidity in the market will further contribute to the thrust in demand.

Post liberalization in 1991, when markets were open, private investment was incentivized & industries were deregularized - India started making notable economic progress. Since then the country has witnessed steady economic growth, thereby expanding its overall foothold in the global market.  Presently, India is the 5th largest economy in the world (3rd by PPP) & accounts for a sizable part of global consumption.

The economic progress of India was dovetailed by a thriving middle class. As the country made economic progress, the middle class expanded fast. Large volumes of the population came out of poverty & entered the middle-income group.

Economic growth & a thriving middle class feed into each other, drawing parallel to advanced economies in Europe & America, where an expanding middle class has been the cornerstone to ascending economy. Backed by huge aggregate purchasing power, middle-income households in India are instrumental in driving consumer goods, consumer durables, retail, automobile & numerous other industries.

The Classification of Indian Middle Class

To understand the Indian Middle class, it is also essential to understand it from the Indian perspective. As per the global standards (Economists), a household income of over USD 10,000 qualifies as the middle class. Going by this standard, around 4-5% or 50 million Indians will qualify as middle class. Similar benchmarks are adopted by Pew Research, which indicates a daily per capita expenditure of USD 10-50 as a middle class.

However, many in the emerging world argue against the €œone size fits all€ approach of classification. Rather they prefer a more indigenous approach attuned to local economic & social nuances. As per Mumbai University, in India anyone with a daily spending power of around USD 2-10 will qualify as a middle class- which means around half or 600 million population will fall under the category.  

Hence when it comes to the Indian middle class, they still fall short of the usual Western perspective that generally means a middle class is someone with a car, washing machines & smartphone. However, with a large population, growing aspirations & constant surge in income- €œIndian Middle Class€ or the €œThe near Middle Class€ represents a very lucrative market to tap on.

How the Near Middle Class is Driving Demand in India

As more & more Indian households are coming out of poverty & joining the middle-income group, they are entering the market with increased purchasing power & higher disposable income to spend. Beneficiaries of this vast & thriving middle class have been numerous industries such as electronics, two-wheelers, consumer durable, smartphones etc.

Currently, India is the biggest two-wheeler market in the world. During FY 2014-2018, the two-wheeler industry grew significantly by around ~ 8% CAGR. In FY 2018, the scooter industry expanded by slightly less than 20%, whereas the motorcycle industry showcased a growth of around 13.7%- one of the steepest spikes in recent times. A spurt in two-wheeler penetration in both urban & rural India is attributed to the rising middle class in tandem with better infrastructure (roads) in rural India alongside higher participation of women in the workforce.

Likewise, India is one of the fastest-growing light electric equipment markets in the world. The consumer durable/ light electrical equipment market in India is slightly over USD 22 billion & is growing at a double-digit rate over the past few years. Out of the total market, the TV segment is roughly estimated at around USD 11.5 billion growing steadily from USD 9.3 billion in 2016. Despite growing digitization in India, TV remains one of the popular mediums of entertainment. The current Modi government's initiative to electrify rural India is also helping in driving demand for TVs. At present there are near around 197 million households with a TV set in India.

Conclusions

As the middle income & near-middle income households continue to expand in India, demand for retail, consumer goods, electronics, FMCGs, etc. will also grow vigorously- offering tremendous opportunities for global & local ventures. The recent liberalization of the FDI in retail & and initiatives to boost liquidity in the market will further contribute to the thrust in demand.

However, to successfully cater to the near-middle income populations, one needs to come up with products tailor-made for their demand & pocket capacity. The emerging class is one of the key ingredients in propelling consumer demands in the country. However, it might be short-sighted to believe that the class is ready enough for apple iPhone & Starbucks. For them, these are still perceived to be luxury. Probably, this is one of the reasons, local brands have done much better than Apple iPhone, when it comes to revenue-wise share of the smartphone market (Apple; however, has registered bigger profits, owing to high prices & better profit margins.) Today two-thirds of the market is driven by Asian brands in India. Xaomi is the market leader in the segment & with Samsung holds over 50% of the market.  

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