India's Consumer Market: The Surge of Indian Consumer as India Emerges

“Today, the drivers in urban and rural areas are the same – aspiration, quality and price – differing
only in order.”1 ---D. Shivakumar, VP & MD, Nokia India Private Ltd.

“From pester power, kids have changed their role to becoming influencers. In the older age group,
they have actually become consultants, whom parents turn to for advice during the decision-making
process.”– Rajat Jain, MD & CEO, Mobile2Win

“The differences are the breadth and depth of the Indian market and the fact that India has
undergone much more social and economic change in the last generation than the US has.”3
– David Daniel, CEO, Spencer Stuart

Well said David Daniel. The Indian market had evolved and expanded its breadth and depth
during its independent life for more than 50 years, giving impetus to socioeconomic and cultural
change.
It was a 200-year-long tryst with destiny, after which India attained independence in 1947. The
first national government, which was inclined towards socialistic philosophy aimed at economic
and social transformation of the country while nurturing Indian democracy and the rule of law. Also
aiming at ascending from tradition to modernity and from poverty to prosperity, it gave importance
to the public sector, the growth of which was expected to trickle down to the rural and poor sections
of Indian society.
On the contrary, the Cambridge Journal of Economics noted that there was “little evidence to
suggest that the trickle down effect had occurred at all... the emergence of capital-labour
substitution was primarily responsible for preventing growth from reducing poverty (in India). The
decline in poverty and a higher growth rate that took place during the late 1970s and 1980s were
largely a result of government anti-poverty measures teamed with the more equitable distribution of
credit and inputs to smaller and marginal farmers.”4
Accordingly, the Indian consumer market could not evolve at a rapid pace. The government’s
socialistic philosophy did not encourage the establishment of private manufacturing units and had
elaborate licenses to curb expansion of existing units. This led to supply constrained consumption
for the Indian consumers, since firms could not produce enough to fulfil the demands. As a result,
the consumer in India was always short of choices and had to buy what was supplied to him. The
scenario changed when Indian economy liberalised in 1991 and markets opened up.
Since 1991, when the Indian economy liberalised, it presented opportunities on a large scale; both
as a domestic market and as a global base, on account of the desire of more than a billion5 people to
grow and improve their standard of living. With the relaxation of regulatory controls on the Foreign
Direct Investment (FDI) norms, the Indian consumer market geared up, attracting investments from
various Multinational Corporations (MNCs) from across the globe. With these developments, the
Indian economic scenario changed rapidly. Growth in disposable incomes, rapid urbanisation,
development of an urban way of life and increasing trend-consciousness among Indians, created the
right environment for new consumer segments to be nurtured and developed – a scenario which was
not seen in India in the past 50 years.

Evolution of Indian Consumer Market

A very difficult question to answer – why could India not take advantage of industrialisation,
despite having bright prospects to improve its economic status? Till 1914, India was the largest jute
producing country, the third-largest railway network and the fourth-largest cotton-textile industry.6
It also had the largest canal irrigation network and a share of 2.5% in global trade.7 However, it had
meandered through several ups and downs since 1951 till the end of last decade of the 20th century,
which can be broadly divided into four phases.

Phase I (1951–1965)
After achieving independence in 1947, the role of the new Indian government was to formulate
policies and frameworks that would help the economy grow and it started the development
programmes by launching its First Five-Year Plan (FYP) (1951–1952). Since independence, the
consumer markets in India were controlled by the socialistic philosophy of India’s first Prime
Minister, Jawaharlal Nehru (Nehru), who believed in self-reliance and local manufacturing while
focusing on shielding the small-scale industries. He also believed that sturdy economic growth
coupled with greater emphasis on small-scale and rural sectors could significantly increase income
and consumption among the poor.
India’s GDP grew at nearly 4%8 per annum during the first two FYPs (1951–1956 and 1956–
1961, respectively). During the first 4 years of the Third FYP (1961–1966), the growth rate
averaged even higher, at 4.5%.9 The government had more restrictive policies towards industries
than it had for trade and foreign investment.
There were three key elements of the industrial policy as it evolved in phase I – dominant role of
the public sector in the development of heavy industry, regulation of private sector investment
through licensing and distribution and price controls.
Phase II (1965–1981)
The socialistic system started by Nehru continued even after his death and was perfected by
Indira Gandhi. During her Prime Ministership, government’s control on enterprises and the growing
tentacles of state ownership saw the average GDP growth rate of India fall from 4.1% during 1951–
1965 to 2.6% during 1965–1975. The population of the country was growing at a rate of 2.3% per
annum, which meant that there was per-capita income growth of just 0.3%.11 During this era, the
government was entirely in charge of the business sector. Government had the power and control to
decide which firm in an industry would produce what and how much. Though there was a huge
demand for products, the government curtailed the production limits and never allowed the private
firms to increase the supply. Thus, due to the constrained supply of products, prices of most of them
were very high and only the rich could buy them. Taxes were high and it was the government which
categorised the products or items into needs, comforts and luxuries, whether it was car, oil,
shampoo or any other product. The government was also keen on applying additional restrictions on
large enterprises through the Monopolies and Restrictive Trade Practices Act (MRTP), 1969 and
imposed severe restrictions on foreign investment through the Foreign Exchange Regulations Act
(FERA), 1973. The license raj12 was further tightened by introducing reservations for small-scale
industries and nationalisation of banks, insurance companies and oil and coal industries.

Phase III (1981–1988)

During this period, the MNCs were brought under the purview of FERA, making it mandatory
for the foreign firms to reduce their equity to 40% and to register themselves as Indian companies.(
“Phase I (1951–65): Takeoff Under a Liberal Regime”, op.cit. )

The socialist approach of the Indian government ensured to control businesses and avoid
monopolisation for which they imposed stringent trade regulations. Many products were set aside
to be manufactured by the small-scale industries. To enter a business and to expand firms, several
complex rules and regulations were to be followed. When Rajiv Gandhi became the Prime Minister
of India, the economy took few steps towards liberalisation, though they were not completely
successful. Gurucharan Das, ex-CEO, Procter & Gamble (P&G) India, summarised his views on
failure of economic reforms by saying, “After fifty years the failure is staggering: four out of ten
Indians are illiterate; half are miserably poor, earning less than a dollar a day; one-third of the
people do not have access to safe drinking water; only a sixth of the villages have modern medical
facilities. The irony is that this system, which was made in the name of the poor, in the end did
very little for them.”( Das Gurucharan, “The Train to Nowhere”, India Unbound, (ISBN 978-0-
14306-301-8), Penguin Books, 2002, page28 )

Phase IV (1988–2009)
According to many researchers, academicians and industry experts, though India achieved its
political freedom in 1947, it became economically independent only after 1991. Post-1991, the
economy started opening up and India began to integrate itself with the world economy which was a
significant development. The financial and Balance of Payment15 (BoP) crisis in 1991 led to the
liberalisation of Indian economy. The new government responded to the BoP crisis by undertaking
major steps, both on domestic and international fronts. The economy of the nation successfully
stabilised and a higher rate resumed within a short period of time. Succeeding governments were
able to maintain the high growth rate and it was predicted that with some key reforms it could be
raised further in near future.
The crisis and the conditionality did speed up the initial liberalisation, but Phase IV was
characterised by an acceleration of growth in the GDP, foreign trade and foreign investment. At the
aggregate level, as against a growth rate of 4.8% during 1981–1988, the growth rate during 1988–
2006 was 6.3%. During the period from 2003–2004 to 2005–2007, the country’s GDP at factor cost
grew at an impressive rate of 8.6%.16 During 2009–2010, the GDP growth declined to around 6%
due to economic downturn, but it was expected that the growth would touch 7.5% over the next 5
years.(“RBI survey of analysts sees FY10 GDP at 6%”,
http://m.economictimes.com/PDAET/articleshow/5238731.cms, November 17 th 2009)

India on the Move

Implementing the structural reforms to open up Indian economy to the rest of the world and
subjecting it to greater market discipline has been the reason for India’s success in the new
millennium.
Since the implementation of structural reforms in Indian economy, the country has seen growth in a
number of ways.

A Market Rising from Poverty

In 1985, 93% of the population lived on a household income of less than INR 90,000 a year
which included subsistence farmers and unskilled labourers that often struggle to find work.
However, after the economic reforms of 1991, India’s economic growth jumped to about 7% and
that considerably improved the country’s well-being. The economic reforms also changed the
fortunes of people and by 2005, that percentage was reduced to nearly 54%.( Beinhocker D. Eric,
et. al., “Tracking the growth of India’s middle
class”,https://www.mckinseyquarterly.com/ghost.aspx?ID=/ )

The reforms also led to a reduction in number and percentage of the people living Below Poverty
Line (BPL). By 2007, nearly 431 million Indians moved above the poverty line – in comparison to
the BPL levels of 1985. It is estimated that another 465 million people will move away from
extreme poverty, if India can continue to grow at 7.3% annually for the next 20 years (Exhibits II
and III).

Exhibit II
A Comparison of Net Reduction in Poverty in 2005 and Projections for 2025
Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/
mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_report.pdf, May 2007

Exhibit III
India’s Growth: People Winning over Poverty

Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/
mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_report.pdf, May 2007

The economic growth that has brought millions of people out of poverty is also building a huge
middle class that will be concentrated in India’s urban areas. Currently, the population in India
is estimated to be about 1,169,016,000 people which is about 10 times that of the population in
Japan. In China, the population is about 1,328,630,000 i.e., slightly larger than India which projects
an incremental consumption growth. According to estimates from the United Nations’ World
Population Prospects of 2006, India is slated to overtake China in terms of the total size of the
population by 2025 (Exhibit IV).

Indian Consumers: Changing Spending Pattern

The Indian consumer is undergoing a significant change. In a two decade period or so, by 2009,
there has been a remarkable turnaround in the way consumers are spending. Earlier, Indians
believed in the ideology of ‘save today-spend tomorrow’ (purchasing just the necessary items). In
contrast, equipped with higher incomes, credit cards, experience of the western shopping culture
and a deep yearning to improve their living standards, the Indian consumers are spending in an
unprecedented manner. This spending culture has been fuelled by the evolution of organised
retailing; with their variety of products and innumerable malls providing both branded products and
private labels. In addition, India’s population is very young when compared to other developed and
developing nations. (Exhibits V and Exhibit VI). The spending pattern of young generation further
adds colours to the growing consumer market in India.

Exhibit V
Bottom-heavy Age Pyramid of the Indian Population

Source: Thathoo Rahul and Kacheria Rahil, “Organized Retail “Inquilab” in India”,
http://cs.stanford.edu/people/thathoo/ retail.pdf, June 12th 2007

Exhibit VI
Age Comparison of the Population in Several Major-Retail Markets
India Brazil China USA UK
Population ages 0-14 32 28 21 21 18
(% of total)
Population ages 15-64 63 66 71 67 66
(% of total)
Population ages 65-above 5 6 8 12 16
(% of total)
Total Population 1,094,583,040 186,404,912 1,304,499,968 296,410,400 60,266,500
Source: Thathoo Rahul and Kacheria Rahil, “Organized Retail “Inquilab” in India”,
http://cs.stanford.edu/people/thathoo/
retail.pdf, June 12th 2007

Opening up of country’s economy has provided a number of opportunities and has created new
avenues of employment. Since liberalisation, a number of MNCs have ventured into the Indian
market, which has forced the domestic firms to compete with these MNCs (and are expanding in the
process). As a result, tremendous job opportunities have been created in the country. This has
resulted in increasing incomes and private consumption, which are estimated to grow rapidly over
the next few years (Exhibits VII and VIII). This has set the ground for a promising Indian consumer
market.

Exhibit VII
Personal Disposable Income: Actual and Projected (1989–2011), in $ billion

Source: Thathoo Rahul and Kacheria Rahil, “Organized Retail “Inquilab” in India”,
http://cs.stanford.edu/people/thathoo/ retail.pdf, June 12th 2007

Exhibit VIII
Private Consumption Per Head: Actual and Projected (1980–2020), in $ billion

Source: Thathoo Rahul and Kacheria Rahil, “Organized Retail “Inquilab” in India”,
http://cs.stanford.edu/people/thathoo/ retail.pdf, June 12th 2007
Exhibit IX
Classifying the Indian Consumer

Further, the financial sector has also undergone tremendous reform and has seen large expansions.
In contrast to the scenario a decade ago, credit cards and loans are easily available and have resulted
in the materialisation of a new consumer culture in India. Both, MNCs and the local firms, are using
different ways like flexible financing, credit card rewards schemes, free gifts, etc., to lure the Indian
consumer. At present, loans for everything, from a house to an automobile, are easily available. As a
result, the Indian consumer can spend his money on items which in yesteryears one could buy only
after saving for a number of years. Migration of a large number of people towards the cities in
search of new prospects has fuelled the growth of urban areas. This growing urbanisation is also
accountable for the changing consumer mindset. As urbanisation spreads beyond the major cities, it
transforms the local population from ‘net savers to net spenders’. This phenomenon is similar to the
one that has been observed in developing countries like Thailand, Malaysia and developed countries
like the US and UK.20
 Most of the MNCs today are focusing on the consumer group, popularly known as – aspiring
India – the middle class which is the fastest growing consumer segment (Exhibit IX).
A study by McKinsey Global Institute (MGI) shows that within a generation, India will become
a country of upwardly mobile middleclass households, consuming products which range from
high-end cars to designer clothing. By 2025, India will surpass Germany to become the world’s
fifth-largest consumer market (Exhibit X).
Since India’s economic liberalisation, the economy is growing at a considerable rate. It is very
important for the MNCs to know that this growth is reshaping the lifestyle of Indian families. Firms
that are unable to understand the unique desires and tastes of the new Indian consumers will miss
out on one of the most important growth segments of Indian consumer market consisting of half
billion people of the Indian middle class.

Exhibit X
Growth of Indian Consumer Market

Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_rep
ort.pdf, May 2007

If the economic growth continues at its current pace, most of the poor people will move into the
class called the ‘aspirers’ – households earning between INR 90,000 and INR 200,000 per year.21
Aspirers consist of usually small shopkeepers, farmers or semi-skilled industrial and service
workers. They spend about half of their income on basic necessities and many of their other
purchases are bought second-hand or in what Indians call the ‘informal economy’. Over the next 20
years this group will shrink from 41% of the population to 36%, as many of them will move up into
the middle class. The next two groups – ‘seekers’, earning between INR 200,000 and INR 500,000
and ‘strivers’, with incomes between INR 500,000 and INR 1 million – will become India’s huge
new middle class.22 The middle class currently numbers approximately 50 million people, but by
2025 it would have expanded dramatically to 583 million people – nearly 41% of the population.
These households will see their incomes balloon to INR 51.5 trillion ($1.1 billion) – 11 times the
level of today and 58% of the total Indian income.23
Other than the middle class, the global Indians segment, earning more than INR 1 million will be
India’s another important spending force. By 2025, there will be 9.5 million Indians in this class and
their spending power will hit 14.1 trillion rupees – 20% of total Indian consumption.24 As the
nation’s economy will continue to grow and rise, there will be a rise in the country’s income and its
shape will change considerably (Exhibit XI).

Exhibit XI
Shape of India’s Income Pyramid
Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_rep
ort.pdf, May 2007

Almost all developed countries are progressing towards maturing population and diminishing
consumer market. The MNCs face a tough job of identifying and creating markets having huge
unmet demands, providing a growth potential to the firms. Having identified such markets, they
make a strategic entry as soon as possible. With economic reforms providing rapid growth, Indian
market is growing at a considerable speed and it has the potential to become one of the most
attractive and favourable consumer markets of the world.

Increasing Household Incomes

In India, opportunities are enormous just in terms of scale and it seems that over a period of time,
the Indian market will offer prospects comparable to those of mature markets of the developed
nations. The continuous economic reforms helped India to grow rapidly over a period of time,
bringing in a fundamental change in the mindsets of both the urban and rural Indian consumers.
This is represented by their increasing household incomes over the years (Exhibit XII).

Exhibit XII
Household Income Growth across India
Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_rep
ort.pdf, May 2007

The rapidly growing Indian economy has moved millions of Indians out of extreme poverty and
is in the process of forming a massive middle class. A research by MGI advocates that if the Indian
economy continues to grow at the same rate, average household incomes will triple over the next
two decades and it will become the world’s fifth-largest consumer economy by 2025, up from
twelfth in 2007.25 In the process, Indian consumers’ spending pattern will change considerably as
unrestricted purchases will capture a majority of consumer spending (Exhibit XIII).

Exhibit XIII
Beyond Necessities
Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_rep
ort.pdf, May 2007

The existing opportunities in India shall provide an impetus for most consumer goods businesses
to serve the market, but to be successful in this multifaceted market, they will be required to
overcome major challenges.

New and Emerging Consumer Segments

The new story being written worldwide is about Indian consumer and Indian consumer market
which has interested many firms from different parts of the world. A substantial young population
with growing incomes, easy accessibility to credits (through loans and credit cards) and availability
of a variety of new products and services have created new consumer segments. Though there was
a slow upsurge in consumerism, it is for sure that there has been a real increase in consumption.
People are willing to spend more – whether it is credit cards, apparel, gems and jewels, cell phones,
or the organised retail – predominantly on discretionary objects. And these consumers seem to be
present everywhere, whether it is the large cities, the emerging new cities, the small towns or even
rural India. With fast emerging changes in Indian consumer market, the corporate firms are able to
see new homogeneity in the market which they could not see in the past decades.
To understand the Indian consumer market, every firm should be able to understand the
individual segments present in the market. The most relevant questions facing Indian and
multinational marketers today include: Who are the new consumers? What are they spending their
money on? This would provide some interesting insights into the emerging consumer segments and
their buying behaviour.

Kids: Influencing the Buying Decisions

Comparing the transition of markets and emergence of kids as new consumers between US and
India, David Daniel, CEO of an executive search consulting firm, Spencer Stuart, states, “The
differences are the breadth and depth of the Indian market and the fact that India has undergone
much more social and economic change in the last generation than the US has. Therefore Indian
consumers and marketers are probably facing a far more intense and highly contrasted situation.”26
According to the census 2001 data, there are nearly 300 million children aged between 4 and 14
years in India – a huge market for any MNC by any standards (Exhibit XIV).27

Exhibit XIV
Classification of Age Groups in India

Age Groups Population Male Female

6 years and below 163819614 84999203 78,820,411
Proportion to total 15.9 16 15.9
population (%)
7 to 14 years 199791198 104488119 95,303,079
Proportion to total 19.4 19.6 19.2
population (%)
15 to 59 years 585638723 303400561 282,238,162
Proportion to total 56.9 57 56.9
population (%)
60 years and above 76622321 37768327 38,853,994
Proportion to total 7.5 7.1 7.8
population (%)
2738472 1500562 1,237,910
Age Not Stated
Proportion to total 0.3 0.3 0.3
population (%)

In the last decade, the impact of children’s role in purchase decisions has altered radically. As
Rajat Jain of Mobile2Win – a Digitial & Mobile Entertainment firm – described, “From pester
power, kids have changed their role to becoming influencers. In fact, in the older age group, kids
have actually become consultants, whom parents turn to for advice during the decision-making
process.”28 And this situation is not just for products like confectionary and toys, but also for
premium products in categories such as electronic goods, automobiles and even durables like
refrigerators and air conditioners, where the decisions were conventionally taken by parents or
elders alone. Post-liberalisation, the roles to a large extent have reversed, with children discussing
the merits and demerits of a purchase decision with their parents.
One feature that has contributed to this transformation is the fact that children appear to be
growing older – a 12-year old child’s psyche today is similar to that of a 14-year old’s a decade ago.
Due to the spread of telecommunication networks and extensive use of Internet, children have a
greater exposure to the world outside, having better awareness levels which have given them power
and they are very clear about what they want. Another feature which drives the current generation
kids is their knowledge and command over technology, which is a main constituent of a high
proportion of products launched in the market. Sachin Rajan (Spencer Stuart) says that, “What is
fascinating is that this demographic shift is being seen across categories and even across cities and
is another characteristic of the homogeneity trend visible in the Indian consumer market.”29
Further, Jacob Kurian, a partner at New York-based consultancy firm, New Silk Route Associates
said, “Parents are also becoming more indulgent. The relationship between parent and child has
changed, moving from a hierarchical system to one driven by respect for children’s views and
abilities.”30

Youth: Charting their Own Path

 Most of the new generation consumers (born during/after liberalisation) have been living with
television and the Internet and are aware of the standards of living and consumer culture abroad.
People in this age group of 15–25 years are making money and the amount of money that they earn
is high, thanks to the call centres and other employment avenues opening up, employing school and
college students. As a result they are ready to spend most, if not all, of their income on apparel,
accessories and electronics. In contrast to other developing nations, India is at an advantage of
having a large percentage of young population. Nearly 35% of the country’s population is aged
below 14 years and more than 60% of the population is estimated to constitute the working class
(15–60 years) by 2050. The median age of the Indian population is 24 years, which is low as
compared to the world’s median age of 33 years.31 This huge market of young people has become
the main target of FMCG companies (Exhibit XV).

Exhibit XV
Emerging Age Segments of India

Source: Dutta Devangshu, “Slicing the Market”,

http://www.3isite.com/articles/Slicing_the_Market.pdf, 2007

The youth also represent a unique market with their love for branded products and
technology- driven gadgets. This consumer segment has emerged from the outsourcing
phenomenon.
A number of MNCs started hiring young people in their Indian branches, which in turn, resulted in
young people having excess money in hand. The growth of personal disposable income along with
increased brand awareness has resulted in high spending on entertainment, leisure and all other
activities of their interest. This segment of young people is constantly on the move – emotionally,
psychologically and physically. They are more interested in spending their time out of the house.
They prefer spending their time in malls, cafés, restaurants or multiplexes, mostly with their friends.
Youth as an emerging segment of consumers, has raised new challenges for marketers, the basic
question being – How does one actually understand the behaviour of such people and identify their
needs and wants and how to understand their way of life, tastes and interests? This is a segment
which pays little or no attention to the products or services, but concentrate more on the trendy
nature of the same. Having been less patient, the youth segment focuses mainly on different things
at the same time.

The Urban Woman: Defining her Own Space

In India, woman has always been considered as one who defines the environment at home. In
cities and small towns, they have been the ‘silent influencers’ for some time now, directing family
purchases and expenditures. Recently, however, the urban women are able to dictate terms and
have gained lot of independence and self-respect. The working woman today has grown out of her
traditional role of just being the homemaker. Since the late 90’s, the working women segment has
seen a remarkable growth, in the non-agricultural sector
Exhibit XVI
Share of Women in Wage
The emergence of working women as a market
Employment in the
segment, particularly urban women, has opened the
Non-Agricultural Sector
floodgates for the MNCs as well as the Indian firms.
Year Share of Women (%) Many of the firms came out with product categories
specifically targeting the urban woman. Be it cell
1990 12.7
phones, laptops and computers, apparel, jewellery or
1991 13
even financial products, women in the cities are finding
1992 13.3 themselves bombarded with uncountable choices.
According to Anjali Bansal, partner at Spencer Stuart’s
1993 13.7
India consultancy firm, “The urban woman wants to
1994 14.1 break out from her traditional, sacrificing image, but
does not want to go all the way. She wants to conform
1995 14.4
to the values she believes in and yet wants to do her own thing.”32
1996 14.9

1997 15.5
Rural India: Waking up to Opportunity
1998 16.0
1999 16.3 The Indian growth story is spreading itself to India’s
rural areas. According to recent studies conducted by
2000 16.6 (NCAER), rural India, home to 720 million consumers
across 627,000 villages, offers a huge consumer base
2001 16.8 for the companies to capture. 33 It is home to
approximately two-thirds of the country’s 1.14 billion
2002 17.3 people (Exhibit XVII), which is not only experiencing
a rise in its earnings but also a rise in consumption and
2003 17.6 production. There are many rural areas in India which are
witnessing a growth of 15%–30% in terms of spending power.
2004 17.9 Further, it is estimated that the rural consumption growth will
2005 18.1
accelerate in the next 20 years (Exhibit XVIII) which will be the result
of declining poverty in the rural areas (Exhibit XIX).

Exhibit XVII
Rural Population
Total Population Male Female
India 1028737436 532223090 496514346
Rural Population 742490639 381602674 360887965
Source: “Census of India 2001”,
http://censusindia.gov.in/Census_Data_2001/Census_data_finder/A_Series/
Total_population.htm
Exhibit XVIII
Growth in Rural Consumption

Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_full_rep
ort.pdf, May 2007

Exhibit XIX
Estimated Decline in Rural Poverty by 2025
 Since the opening up of Indian economy, rural consumer has been slowly shifting away from
agricultural activities to other income generating activities (Exhibit XX). It means that the
disposable income levels among rural sections of society have been on a raise ultimately leading to
evolution of new potential markets in rural India. In addition, the people in rural areas are
bombarded with a range of products and services that were not seen by them earlier. With this new
flow of products, they are much more excited to use them rather than their urban counterparts. The
buying behaviour and spending pattern of rural people help the business firms to explore the
market, provided there is clear cut STP strategy.
D. Shivakumar (Shivakumar), VP and MD, Nokia India Pvt. Ltd., is highly optimistic about the
future of the Indian rural market. He says, “In 5–10 years, I see a very different rural India. In sheer
economics, there will be 30 per cent more expenditure in the next 20 years compared with the past
20 years – this is a significant shift and will impact India very differently. Today, 46 per cent of all
households in India have a bicycle, while only 34 per cent have a radio. In 10 years time, the mobile
phone will be king and therefore all advertising and communication will happen on mobile
platforms.”34

Exhibit XX
Shift in the Pattern of Rural Employment
Source: Ablett Jonathan, et al., “The ‘Bird of Gold’: The Rise of India’s Consumer Market”,
http://www.mckinsey.com/mgi/reports/pdfs/india_consumer_market/MGI_india_consumer_f
ull_report.pdf, May 2007

In addition, the growing literacy levels among rural consumers also contributes to the growth of
the rural India as a separate market segment. Despite the differences in education levels between
rural and urban consumers as per 2001 census (Exhibit XXI), the growing literacy levels are going
to prove Shivakumar’s words that rural India would be something different within next 5–10 years.
According to Pankaj Gupta, practice head, Consumer & Retail, Tata Strategic Management
Group, “Several factors have led to an increase in rural purchasing power. The increase in
procurement prices (the government sets the minimum support price – MSP – for many farm
products) has contributed to a rise in rural demand. A series of good harvests on the back of several
good monsoons boosted rural employment in agricultural and allied activities. Government schemes
like NREGS (National Rural Employment Guarantee Scheme, which guarantees 100 days of
employment to one member of every rural household) reduced rural underemployment and raised
wages. Also, farmers benefited from loan waivers [introduced in the last Union Budget]. The
increase in rural purchasing power is reflected in rural growth across a number of categories. For
example, in the financial year 2009 [April-March], FMCG [fast moving consumer goods] rural
volume growth is estimated to be 5% to 12% higher than urban growth across a number of
categories.”

Exhibit XXI
Literacy in India as per 2001 Census

Total Population Male Female

Total No. of literates 560687797 336533716 224154081
Literacy rate 64.80% 75.30% 53.70%
Rural No. of literates 361870817 223551641 138319176
Literacy rate 58.70% 70.70% 46.10%
Urban No. of literates 198816980 112982075 85834905
Literacy rate 79.90% 86.30% 72.90%
Source: “Census of India 2001”,
http://censusindia.gov.in/Census_Data_2001/India_at_glance/literates1.aspx

Winning in the Indian Market: A Challenge for the Business Entities

As is the case with the new and evolving Indian consumer market, it is said that any new trend
will always be overestimated in the short-term but undervalued in the long-term. Additionally, with
the technological changes taking place at neck breaking speed, consumer behaviour patterns are
likely to undergo radical changes. It is crucial for marketers and firms to be aware of the changes in
the present and of existing potential for the future. With such possibility of growth, it is difficult to
identify or judge which companies will be able to capture majority of the market share in most
product categories. Business opportunities will be abundant since there will be millions of first-time
buyers, willing to step up and spend freely. In addition, majority of the consumers are moving from
scattered and hard-to-reach rural areas to more concentrated and accessible city markets, which in
turn will create new consumers for the businesses established in the city markets. Thus, it is creating
the climate for the expansion of already established businesses in the urban areas.
For every business corporation, it is very important to know and identify the main motives
behind the consumers’ buying behaviour. To be able to lure the customers and capture their hearts
and wallets in order to make profits, companies must modify their business model as per the local
conditions.36

Offer Value at the Right Price:

Getting the price right is very important. Although the incomes of Indian consumers are growing,
there are still many companies eyeing on their modest budgets. Companies who want to share the
Indian market pie must comprehend the importance of affordability.
There are companies which have successfully launched products, manufactured, keeping the local
conditions in mind and are doing well. Examples include Nokia (1100 model), Unilever (Lifebuoy),
Samsung (washing machines with memory backup and microwaves to cook Indian dishes).

Educate the Consumer:

It is not always the case that by identifying the needs of the customer,
creating the product and selling it for the right price will create demand for the product. Most of the
Indian product markets are in the early stages of growth and to win in these markets, the firms
should be persistent and continue their investment. However, the main obstacles in building these
markets are low awareness among consumers about the availability of brands and products and a
lack of knowledge about their use. Hence, it is important for the company to educate the consumer
in a right way.

Design to Cost:
In a developed market, where the demand exists for a product, it is not very difficult for the firm to
sell and generate profits. But in the case of developing countries like India, how can companies sell
products at prices that Indians cannot afford? Rather than setting a target for profit, a company,
which can gain success, will first decide the price which will be affordable and
then decide on the profit margins. The product should be designed to cost and not profit.

Getting Distribution Right: Reaching India’s rural consumers cost-effectively is necessary, as

a major part of the new growing consumer segment is in rural India. Hindustan Unilever Limited
(HUL) has created massive distribution networks to reach the nook and corner of India with 20
distribution centres and 7,000 distributors who use sales people trained by Unilever to work with
more than 8 million retailers and HUL is very successful in India.
Indian consumer spending will shift to a large extent from informal retailing (mom and pop
stores), with its individual traders, to more competent formal retailing of organised businesses. This
change will lower prices and further improve demand. But this will not be easy for both the
organised and the unorganised retailers. Bureaucratic obstacles including red-tapism and
infrastructure shortcomings will withhold many strategies. In addition, the cumulative expenditure
will rise enormously for implementing all the governmental measures. And in turn, this expenditure
will be distributed (by the standards of developed countries) across hundreds of millions of
households, most of which have very modest incomes and highly sensitive to price and value. In
many consumer markets, both Indian companies and MNCs are already competing intensely for
customers. While the opportunities will be enormous, the challenges will force companies to be
more dynamic by adapting their products, services and business models to the rapidly changing
needs and incomes of Indian consumers.
Many of the industry experts as well as academicians are of the opinion that predictions for the
Indian consumer market are over-optimistic. According to Rama Bijapurkar, independent director
on the boards of many firms, “The existence of Indian middle class is a myth, as there is no single
global definition for middle class. She also says that consumer demand in the developing economies
are made up of lots and lots of people consuming a little bit each, adding up to a lot.”39 She further
says that there are many ways in which a firm can stratify a consumer and businesses should think
of India as a collection of many discrete segments – each having its own characteristics and pattern.
The marketer should be able to identify, innovate and earn profits by serving the demand structures
characterised by large populations with low-income structures. To be successful in a country like
India, having varied demographic profile, differences based on culture, income, etc., firms must be
ready to devise multilevel strategies that can be applied across segments.

QUESTIONS:

1.“The differences are the breadth and depth of the Indian market and the fact that India has
undergone much more social and economic change in the last generation than the US has.”(case
study). In the light of this statement, how do you characterise the Indian consumer market? What,
according to you are its unique characteristics?

2.Describe the evolution of Indian consumer market from the mid-1950s to the present. What,
according to you have been the defining moments of this evolution?

3. The post-liberalisation period has brought a number of changes tothe Indian economic landscape.
Compare the pre- and post-liberalised India and explain the background of the changing lifestyles of
Indian consumers in the post-liberalisation period.

4. How do you characterise the Indian consumer market? What have been its highs and
lows?
5. The structural reforms in Indian economy have opened the doors for the MNCs to enter the
Indian market. Why should MNCs be interested in the Indian market now, when in the past many of
the MNCs have failed to capture the Indian market?

6.What makes the Indian consumers spend money, since it is lower than the income of their
counterparts in the developed nations?

7. “...the existence of Indian middle class is a myth, as there is no unique universal definition for
middle class” (para 5 of the case study). With reference to this statement, justify the various reports
stating the rising power of Indian middle class.

8.Since 2001, Indian consumer market has undergone, to put it mildly, a metamorphosis giving rise
to new consumer segments? What would these new segments be and what does it mean for the
Indian companies and MNCs operating in India?

9.Is it rational to believe that the availability of electronic goods at various price points (enabling
purchases by all segments) and advances in information technology (enabling marketers to reach all
consumer groups) have had a deep impact on this metamorphosis?

10.How has the consumer changed in the modern day context, i.e., consumers’ ‘earn now–spend-
now’ philosophy as compared to the ‘save-today’ and ‘spend-tomorrow’ philosophy of pre-
liberalisation period?

11. With the economic development, the lifestyles of Indian consumers have taken a new
dimension. What has been the impact of changing lifestyles and how do they continue to exert
sufficient influence on Indian consumer behaviour?

12. “From pester power, kids have changed their role to becoming influencers. In the older age
group, they have actually become consultants, whom parents turn to for advice during the decision-
making process.” (3rd introductory quote of the case study).
How have kids as consumers influenced the buying behaviour of the Indian consumer markets?

13. Apart from the traditional segments, what according to you are the new and promising consumer
market segments? Who – Indian companies or MNCs – are better prepared to reach out to those
segments?

14. After 1991, as the changes in Indian consumer market were taking place, many companies, both
Indian and multinationals, have adopted some innovative ways to create and serve the new
consumer markets. Highlight some of the revolutionary practices that had a profound effect on the
markets?

15. What competitive strategies are to be adapted by both Indian and MNCs to attract the emerging
segment of new Indian consumers? How can Indian companies tackle the competitive situation, not
only to retain the existing consumers but also to attract the new consumers?

16. With the economic development, the lifestyles of the Indian consumer have taken a new
dimension. How do you explain the impact of changing lifestyle on Indian consumer behaviour?
What, according to you must be the role of MNCs in Indian consumers’ changed behaviour?