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Indian Income-Class Opportunities

Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Gyan Research and Analytics (Gyan). While reasonable care has been taken in its preparation, Gyan makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Gyan will not be liable for any loss incurred by users from any use of the publication or contents.

Indian Income-Class Opportunities - 2012

Table of Contents
1. Overview ............................................................................................................................................. 3 1.1 The Indian Income Class................................................................................................................ 3 1.2 Emergence of the Middle Class..................................................................................................... 4 2. Growth Drivers .................................................................................................................................... 5 3. Emerging Opportunities in the Indian Market .................................................................................... 8 3.1 The Automobile Sector ................................................................................................................. 8 3.2 The FMCG Sector .......................................................................................................................... 9 3.3 The Consumer Durables Sector................................................................................................... 10 3.4 The Healthcare Sector................................................................................................................. 11 4. Outlook ............................................................................................................................................. 12

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Indian Income-Class Opportunities - 2012

1. Overview
1.1 The Indian Income Class The Indian economy has demonstrated an increasing upward trend in the last decade. For the last five years, the countrys GDP growth rate has consistently been over 8 percent. This growth is all the more impressive in view of the inherent hurdles faced by the country such as high poverty rate, low literacy levels, inadequate infrastructure, income inequality and a large population. According to a 2007 report by McKinsey Global Institute (MGI), Indian households can be classified into five economic groups based on annual disposable income. These are: Deprived (less than INR 90,000 or less than USD 1,969), Aspirers (INR 90,000 INR 200,000 or USD 1,969 USD 4,376), Seekers (INR 200,000 INR 500,000 or USD 4,376 USD 10,941), Strivers (INR 500,000 INR 1 million or USD 10,941 USD 21,882) and Global Indians (more than INR 1 million or more than USD 21,882). This report states that the number of people in the deprived income group Note: Figures are rounded to the nearest integer and may not add upto 100% Source: MGI Report
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005 2015F 2025F 54 35 22 36 41 43

Share of Population in Each Income Bracket


1 19 1 1 2 9 Globals 32 Strivers Seekers Aspirers Deprived

will plunge to 22 percent of the population by 2025, from 54 percent in 2005, taking into account a population growth of 29 percent from 2005 levels. This implies that more than 291 million people will work their way into the Aspirers and Seekers categories.

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Indian Income-Class Opportunities - 2012

1.2 Emergence of the Middle Class The liberalization of the Indian economy in 1991 marked the beginning of a new era of growth for the country. The unprecedented economic reforms that were initiated, coupled with favorable demographics, have given birth to a phenomenon called the Middle-Class. The National Council for Applied Economic Research (NCAER) categorizes the middle-class on the basis of annual income of households between INR 340,000 to INR 1.7 million. The current status of middle-class households in India is 31.4 million, which translates into 160 million people. A recent report by the NCAER suggests that the country will house 53.3 million middle-class households, i.e. around 267 million people in this category by 2015-16. Further, the middle-class population is predicted to reach 547 million by 2025. A typical Indian middle-class household spends about 50 percent of the total income on daily expenses and the rest is saved. Most national and multinational companies see a plethora of opportunities emerging from the demand generated by this strongly growing populace. This is especially so, as India is perceived to be a consumer-driven economy and is predicted to continue its growth trend over the next two decades. The driving factors of this anticipated growth are - rising urbanization, a young population, higher income and the quest for a better lifestyle.

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Indian Income-Class Opportunities - 2012

2. Growth Drivers
i. Strong Economic Growth

The Indian economy has shown steady growth in the last decade, despite the global
12.0 10.0 10.0 8.0

India's GDP Growth Rate

economic meltdown. Though, in 2011 the economy fell sharply to 7.2 percent growth from 10.6 percent in the

10.6 8.1 8.2 8.1 8.1

Percent

6.0 6.2 4.0 2.0 0.0

6.6

7.2

6.9

7.3

previous year, due to mounting inflation and rising crude oil prices in the global market.

2007 2008 2009 2010 2011 2012F2013F2014F2015F2016F2017F

Source: IMF, World Economic Outlook However, Monetary predicted the Fund that International (IMF) the has
4,000 3,500 3,500 3,000 2,500 2,900 2,600 3,200

bsite

India's GDP per Capita (PPP)


3,700

Indian

economy will continue to grow at a steady rate of about 8 percent in the next five years.
USD

This represents a flood of opportunities companies market. With economic growth has come consistent rise in per capita income. This has given the Indian middle-income in for the the Indian

2,000 1,500 1,000 500 0 2007 2008 2009 2010 2011E

Source: CIA, The World Factbook

bsite households the luxury of having more disposable income to spend.

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Indian Income-Class Opportunities - 2012

ii.

Private Consumption consumption in the


10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

Private

country is increasing at a brisk clip and growth rate has been over 7 percent for the last five years. Private consumption is expected to drive more than half the growth in India.

Private Consumption Growth Rate in India, FY2007 - FY2011


9.2 8.1 7.1 7.0

8.7

Percent

FY2007

FY2008

FY2009

FY2010

FY2011

Source: Planning Commission iii. Favorable Demographics

Indias demographics is one of the primary reasons for its economic growth. The Planning Commissions prediction that around 64 percent of the countrys population will be in the age bracket of 15 59 years by 2012 augurs well for Indias economic as well as industrial growth.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

India's Changing Demographic Profile


7 8 8

59

62

64

34

30

28

2002 Under 15

2007 15-59 60+

2012F

Source: Planning Commission, India


bsite

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Indian Income-Class Opportunities - 2012

iv.

Increase in Disposable Income income plays a Personal Disposable Income in India, FY2006 - FY2010
6,00,000 5,12,213 5,00,000 4,48,877 3,32,774 2,91,007 3,73,454

Disposable

pivotal role in determining the growth of several industries such as fast moving consumer goods (FMCG), consumer
INR million

durables, automobiles, tourism, education, real estate, telecom, entertainment, banking &

4,00,000 3,00,000 2,00,000 1,00,000 0 FY2006

financial services, and many more. These industries are

interested to know where the disposable concentrated geography, income in terms is of age,

FY2007

FY2008

FY2009

FY2010

Source: Reserve Bank of India

occupation,

income group and such like, so that they are better able to target their products, sales efforts and marketing campaigns.

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Indian Income-Class Opportunities - 2012

3. Emerging Opportunities in the Indian Market


3.1 The Automobile Sector The Indian automobile industry
Turnover of Automobile Industry in India, FY2007 - FY2011
70,000 60,000 50,000 43,296 36,612 30,476 30,000 20,000 10,000 0 FY2007 FY2008 FY2009 FY2010 FY2011 33,250 58,583

accounts for around 4 percent of Indias GDP and is one of the key constituents of the economy.
USD million

Currently, the market is going through a period of optimism; although sales volumes in 2009 diminished due to the global economic downturn, recovery has been remarkable. The sector has been growing at a CAGR of 18 percent over the last five years. While the sale of commercial vehicles

40,000

Source: SIAM
bsite

plummeted during 2008-09, two-wheelers and three-wheelers went against the trend and continued to register brisk business. Interestingly, the demand for vehicles in India is quite different from other major automobile markets. The twowheeler segment constitutes more than three-quarters of the market, while commercial vehicles account for about 5 percent. By 2016, India is expected to be the worlds seventh-largest automobile
Passenger Vehicles Three Wheelers Commercial Vehicles Two Wheelers 76% 5% 3%

Market Share of Automobile Industry in India, FY2011

16%

market, and the third-largest by 2030.

Source: SIAM

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Indian Income-Class Opportunities - 2012

3.2 The FMCG Sector Indias FMCG industry was estimated at USD 27.9 billion in 2010, growing at a CAGR of 15.4 percent in the last five years. It is the fourth largest sector of the Indian economy. The sector is characterized by the strong presence of several Indian and multinational players. These players are leveraging Indias cost0 2006 2007 2008 2009 2010 30 25 24.2 21.3 17.8 15.7

Market Size of Indian FMCG Industry, 2006 - 2010


27.9

USD billion

20 15 10 5

competitive labour to gain advantage in the international market.

Source: IBEF
bsite

Organised retail has enhanced the distribution of Indias FMCG sector. The countrys rural population has received great impetus through
4%

Market Share of FMCG Sector, 2010


4% 2% 5% Food Products Personal Care Fabric Care 8% 43% Hair Care Households 12% OTC Products Baby care 22% Others

higher minimum support price (MSP), loan waivers through National the and disbursements Mahatma Gandhi

Rural

Employment

Guarantee Act (MNREGA) and other pro-people schemes. These measures have helped in alleviating poverty and increasing spending power in rural India, thereby directly impacting the FMCG sector. Source: Various Published Resources
bsite

In addition, the Indian government has allowed 51 percent FDI in multi-brand and 100 percent in single-brand retail to make India more attractive to overseas investors. This policy is expected to open up plethora of opportunities for domestic as well as overseas players alike. Gyan Research and Analytics Pvt. Ltd., 2012

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3.3 The Consumer Durables Sector The Indian consumer durables


Consumer Durables Market Size in India, FY2006 - FY2010
6.3 5.2 4.7 3.8 4.2

industry is the one that has majorly benefitted from the economic
7 6 5

escalation of the country. Rising disposable income, growing


USD billion

population and changing lifestyles is driving the growth of this market. The sector garnered revenues of USD 6.3 billion in 2010, growing by 21 percent from the previous year. Overall, it has been growing at a CAGR of 13 percent over the last five years.

4 3 2 1 0

FY2006

FY2007

FY2008

FY2009

FY2010

Source: Various Published Resources


bsite

The market can be classified into three segments, namely - white goods, brown goods and consumer electronics. The market as a whole is dominated by MNCs from Korea like Samsung and LG; however, Indian companies like Videocon and Godrej are slowly gaining significant market share with the rise in the Indian middle class spending power.
Urban Rural 67% 33%

Composition of Consumers in India, FY2010

While the urban market dominates the revenues of this sector, with more than two-third share, there is a huge latent potential in the rural markets of India.
bsite

Source: Various Published Resources

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Indian Income-Class Opportunities - 2012

3.4 The Healthcare Sector Riding on higher economic growth, the Indian healthcare market expanded to USD 50 billion in 2010. It is expected to reach USD 101 billion by 2015, growing at a CAGR of 15 percent. India's rich heritage has traditionally attracted a lot of tourists. Medical tourism will see a marked boom in the years to come. Health cities, with the intention of luring medical tourists, is on the rise, and players in healthcare will leverage on integrated medicine models by providing Ayurveda, Source: Gyan research and Analytics
10 0 2006 2007 2008 2009 2010 60 50 50 41.4 USD billion 40 30 20 34.2 37.6 45.5

Indian Healthcare Industry, 2006 - 2010

Homeopathy, Unani, Yoga and other therapeutic systems along with modern medicine. Tier- II and Tier-III cities have suddenly become attractive to healthcare players. This trend is conspicuous especially because of tax holidays, increasing disposable incomes among Indian families across the country, and a dearth of quality healthcare infrastructure in these locations. This phenomenon is likely to continue and expand in the foreseeable future.

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Indian Income-Class Opportunities - 2012

4. Outlook
With the Indian middle income class predicted to reach around 550 million by 2030, industries, both national and international, are waiting with baited breath for opportunities to arrive. According to a recent press release by PricewaterhouseCoopers (PwC), the Indian middle class is expected to be a USD 1 trillion market. The report observes that the majority of this opportunity will emerge from rural areas of the country. Notwithstanding the size of the middle class, peoples purchasing power has definitely gone up by a few notches in the past two decades. With a rising economy and greater income, the consumeroriented industries are bound to expand in the near future. The Indian consumer market is predicted to be the fifth largest market in the world by 2025. Moreover, in the next two decades, the consumer market will spill over into the Tier II and Tier III cities as the ambit of urban population enlarges. This will give multinational companies the incentive to increase their product base and range of customized products. On the flipside, rising inflation, an expanding oil import bill and a falling rupee are causes of concern for both the industry and the people of India.

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