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Manjari Raman

New Delhi, Nov 27: Gooodbye Middle Class, Hello Very Rich? According to a projection by the
National Council of Applied Economic Research (NCAER), by the year 2006-7 the number of
top spenders in the country would have risen to 983.4 million, greater than the country's total
current population of 950 million.

If that's cold comfort right now, consider: In terms of consumer durable consumption, you are
probably better off today than on November 28, 1994. For, corroborating the NCAER's sunny
forecast now is the latest market survey of households (MISH) -- to be published soon as the
NCAER report on Indian Market Demographics: The Consumer Class -- which covers the actual
trends during the years 1994-95 and 1995-96.

In this period, the number of households in the Very Rich, the Consuming Class and the
Climbers -- considered as the top three consumer groups - grew by 13 per cent, that is, nearly
five times as fast as the rate of population growth.

Showing a marked trend towards a population which is moreprosperous and has a high
propensity to consume, the total number of households in the top three groups increased from
77.6 million households in 1994-95, to 87.8 million households in 1995-96.

At the bottom end of the market too the market structure underwent a significant change with the
number of households classified as Destitute and Aspirants plummeting from 83 million in 1994-
95 to 77 million in 1995-96, a drop from 7 to 3 per cent of total households. However, the
decline was more in urban areas -- where the number of destitute and aspirant households
decreased by 14 per cent -- than in rural areas, where the decline for the two categories combined
was by 9.3 per cent.

Pertinently, the NCAER classifies consumers purely on the basis of the ownership and
consumption -- and not on household income. Therefore, instead of the traditional classifications
(low, low middle, middle, upper middle and high income groups), the NCAER classifications
are:

* Destitutes: who consume very little of themanufactured goods;

* Aspirants: who purchase a few inexpensive consumer goods like transistors and bicycles;

* Climbers: who own and purchase slightly more expensive durable goods like black and white
televisions, sewing machines and mixer-grinders;

* The Consuming Class: which buys the bulk of the consumer goods marketed in the country,
and;
* The Very Rich: who buy the most expensive consumer products.

Says I Natarajan, chief economist, NCAER: ``In 10 years time there will be a six-fold growth in
the number of Very Rich in the country.'' Some more insights from the NCAER's latest MISH
findings and the 10-Year Whitebook, which projects trends in the Indian consumer market
between 1997-2007?

* Urban areas will become increasingly consumerist and prosperous with more and more
households moving into the Very Rich, Consuming Class and Climber category. According to
the latest MISH findings, the number of Destitute and Aspirants fell from 14.4 million in 1994-
95 to 12.4 in 1995-96. By 2001-2, thenumber is expected to fall to just 5.6 million, and by 2006-
7, to just 1.2 million.

* The new middle class consisting of the Consuming Class population and the Climbers is
burgeoning. It grew from 76.6 million households in 1994-95 to 86.6 million households in
1995-96. In the future it gallops: in population terms, up from 439.8 million in 1994-95, to a
projected 725.2 million by 2001-2, and a whopping 948.4 million by 2006-7.

* The next 10 years will see a huge jump in the number of people falling under the Very Rich
category. While the number of Very Rich households grew by a moderate 1 million in 1994-95,
to 1.2 million in 1995-96, they will nearly triple by 2001-2 to 3 million households. More
importantly, while the NCAER estimates that the number of Very Rich was just 5.7 million in
1994-95, by 2006-7 the number will zoom up to 35 million -- and be comparable to a rich
European country.

The NCAER projections are based on assuming that annual growth in income averages at 6.7 per
cent between1995-96 and 2001-2, and at 7.8 per cent from 2002-3 to 2006-7. According to
Natarajan, annual incomes, on an average, grew by more than 7 per cent for the years 1995-96
and 1996-97, while the projection for 1998-99 lies between 5.5 per cent and 6 per cent.

Besides exploding myths like the Great Indian Middle Class, the NCAER classification provides
a much truer perspective of buying patterns and trends in household consumption. Says Natrajan:
``Forget about income levels, you need to look at who buys what. A household with an income
of Rs 10,000 in a metro consumes quite differently from a household with a similar income in
rural areas.''

For example, at 1994-95 prices, a traditional income-based approach would slice the economy
into five slabs where: the low income households where total annual income would fall below Rs
22,500; low-middle income between Rs 22,500 and Rs 45,000; middle income Rs 45,000 and Rs
62,000; upper middle, Rs 62,000 and Rs 96,000; and high income, above Rs 96,000.

However, theincome ranges for the different consumer classes -- obtained by superimposing the
distribution of households by income in 1994-95 on the different consumer groups -- is quite
different. The new income ranges at 1994-95 prices are: Destitutes, below Rs 16,000; Aspirants,
between Rs 16,001 and Rs 22,000; Climbers, between Rs 22,001 and Rs 45,000; the Consuming
Class, between Rs 45,001 and Rs 215,000; and the Very Rich, over Rs 215,000.
Natarajan is quick to warn, however, that the income levels should not be confused with
purchasing power. In 1994-95, for example, the Consuming Class accounted for nearly 29
million households that owned and consumed most of the expensive consumer goods like
refrigerators and washing machines.

According to income categories, this should have meant that such high value consumer products
were bought essentially by those earning between Rs 45,001 and Rs 215,000. However, actual
MISH data indicates that the Consuming Class as defined by this income level, accounted for
only 71per cent of the refrigerators, 75 per cent of the scooters, 70 per cent of colour televisions,
and 82 per cent of washing machines sold.

According to Natarajan, it is possible that some of the households with lower levels of income
also have a purchasing power similar to that of the Consumer Class, although they are not
classified under this group on the basis of their income. Similarly, there may be others who do
not belong to this Consuming Class but have crept into it on the basis of their income. That
explains perhaps, why, if it's going so well, it hurts so much right now?