MID TERM ESSAY

OF

UIC
(UNDERSTANDING INDIAN
CONSUMER)

SUBMITTED TO: SUBMITTED BY:

Ms. Supriya Kalla Sahiba Juneja
Section J

IILM Institute for Higher Education

School of Business
 "INDIA" – "CHANGES IN LAST 60 YEARS"

Fifty-five years after Jawaharlal Nehru's Tryst with Destiny speech welcoming free India, is there
much to crow about? The answer, despite the pessimists, is a resounding Yes, there is. And we have
to be proud of India's achievements. There is nothing much to be pleased about population growth
which was about 350 million around 1947 and is now over a billion. But life expectancy was
around 29 years at the time of independence but is now closer to 65.
For most of the Independence and post-Independence generation of Indians, the image they held of
their country and its citizens was a depressing one. While the country was painted in the colors of
poverty and squalor, the citizenry evoked pictures of corruption and pettiness. Both were considered
to be decidedly backward and hardly inspiring either to the world at large or to the populace of the
country itself.
This view has all changed since laws were liberalized and the economy began first looking up and
then booming. As generational change took place, the old gave way to the new and young, in more
ways than one. The despair has given way to optimism like never before. And all the while, the
economy has continued on its upward trajectory.
In the 1950s we were not growing enough food to feed 400 million people and were looking
desperately for aid, especially from the United States. Presently we are a good surplus state and can
export wheat. The Green Revolution did wonders but hardly anyone thinks of it. Just about a decade
ago we are desperately in need of foreign exchange and and had to mortgage our gold reserves.
Today our reserves are close to $ 60 billion and rising. For years India's rate of growth was less than
3 per cent and some of our own intellectuals were describing it derisively as the Hindu Rate of
Growth. India today has a Gross Domestic Product (GDP) of $ 2,375 billion and is considered the
fourth largest economy in the world.
In any event, unlike in previous drought years, the economy is now in such solid shape that the
government does not have to panic over deficit rainfall. It is likely, of course, that rural incomes will
fall, but the national economy is, unlike in the fifties, today dominated by services which account
for nearly 50 per cent of the GDP. And services, like IT, Banking and Finance, media and
entertainment and a host of others, continue to grow at a breathtaking pace, despite the global
slowdown.
In 1947 India was known abroad for its poverty, snake charmers, fakirs lying on beds of iron nails,
cows wandering in city streets etc. etc. India was considered an exotic land and nothing more. There
were hardly any Indians living in the United States or, for that matter, in the United Kingdom,
Canada or Australia. Today Indians constitute the highest income ethnic group in the United States.
Indian businessmen are noted for their acumen, especially in the software field. Indian Americans
constitute almost a third of the NASA workforce. Indian teachers are valued in American
universities, colleges and schools. Indian doctors have established a veritable name for themselves.
India has come a long way since 1947 though it may be argued that it still has a long way to go in
practically all fields of endeavour right in India itself. Millions still live below the poverty line,
literacy is still low by western standards, hundreds of villages hardly have any drinking water and
health care is less than minimum. But that should not detract us from the successes which are
stupendous.
India is moving from a trillion dollar economy to 2 trillion in next 6 years. That is why India is
selling 1 million motorcycles in a month, car demand is growing by 30%, demand for Maggie
noodles is growing at 25% per annum and India has become the fastest growing cell phone market
in the world.
India’s GDP stood at Rs. 10000 Cr. in 1951 which was distributed between a population of 35 Cr.
translating into a per capita income of Rs. 285. For the year 2009 – India’s GDP stood at Rs. 54
trillion, translating into a per capita income of Rs. 48450 p.a thus resulting in a per capita income
growth of 9.25% CAGR during a 58 Yr. period.

Images F&R Research India Retail Report 2007 states that the Indian economy is the second fastest
growing economy in the world. It is also the fourth largest economy in Purchasing Power Parity
(PPP)terms after the U.S. China and Japan and is expected to emerge as the third largest in GDP
terms over the next five years.
Tracking the growth of incomes in India, the report highlights a growth of 5.7 percent per year
between 1985 and 1995 and 6 percent from 1995 to 2005. According to their projections, incomes
will grow by 6.4 percent between 2005 and 2015, and by 7.4 percent between 2015 and 2025. This
would greatly increase the disposable incomes and spending power of the population.
The institute estimated that the total size of the Indian market in 2005 stood at Rs.16.896 trillion
($370 billion) and is expected to reach about Rs.69.5 trillion ($1.5 trillion) by 2025. The total
private spending for 2005 accounted for 62 percent of India’s GDP, which is closer to developed
economies such as the U.S. (70 percent) and Japan (57 percent) than to China (37 percent) and other
fast growing emerging markets in Asia.
The Images F&R Research report put total consumer spending for 2006 at Rs.20 trillion ($445
billion), retail consumption at Rs.12 trillion ($270 billion) and the share of organized retail at
Rs.550 billion ($12.4 billion) at current prices.
It also highlighted that with more that 600 million effective buyers by 2010 and more that 550
million under the age of 20 by 2015, the country promises to be a resplendent market.
The report expects substantial changes in consumption patterns. It is expected that discretionary
spending, which increased from 35 percent in 1985 to 52 percent in 2005, will reach as high as 70
percent in the next two decades.
It took full 60 years after independence for Indian GDP to move up to Rs. 42 trillion. India achieved
its 1st trillion $ GDP in 2007. As per current reckoning, we should touch nominal GDP of Rs. 100
trillion by 2015 & if INR / $ exchange rate remains stable, it will show a rise in the trillion dollar
economy in 7-8 years. The journey doesn’t stop here. In fact, journey picks up further momentum.
The next GDP doubler comes in after another 7 to 8 years thus elevating our GDP to a level of $4
trillion before 2025.

The emergence of next trillion-dollar economy will dramatically change the income level of the
people thus resulting in steep acceleration in demand for many goods and services. We have seen
telecom penetrating rising from 4% in 2001 to 40% in 2009. This has materialized due to increased
affordability in wireless telephony. Indian consumption level for durable as well as non-durables
has been just a fraction of emerging market average levels of consumption. This is purely
affordability issue. As and when affordability catches up with price of the consumer goods –
demand grows exponentially for many years due to matching of affordability with pent up demand.
This change can be engineered even by reducing product prices itself. However, in the absence of
product price deflation – affordability will take its own time.

The Newer India has different consumption patterns.

There are due to :
1. Liberalization
 2. Awareness of Education and Literacy among people.
3. High disposable income at Young age
4. Larger number of working women
5. Media

FMCG

The FMCG sector has been registering double-digit growth in sales since the last couple of years.
Currently estimated at US$ 17.42 billion, it is the one of the most promising sectors in India.
Despite the economic recession, the industry is expected to register a value growth of 14 per cent in
the fourth quarter of 2008-09 as compared to the corresponding period last year.

FMCGs have seen over 20 per cent demand in rural markets ahead of the 17-18 percent growth in
urban India. According to AC Nielsen, mainstay categories like hair oils, toothpastes, shampoos,
skin creams and lotions, and even candies saw more growth in rural markets than urban. The overall
number of rural households is estimated to grow to 153 million in 2009-10 from 135 million in
2001-02. Further, as per an NCAER report, compared to urban areas, the ‘lower middle income'
group in rural areas has nearly doubled.

This major consumer base accounts for 41 per cent of the Indian middle class having access to 58
per cent of the total disposable income. The mobile boom has now also hit rural India. According to
a report jointly released by the Confederation of Indian Industry (CII) and Ernst & Young, of the
next 250 million Indian wireless users, around 100 million (40 per cent) are expected to be
from rural areas.

Luxury Products
With the rapidly increasing number of millionaires in India, the market for luxury brands is growing
annually at a compound average growth rate (CAGR) of about 35 per cent.
According to a FICCI-Yes Bank report, India is set to become a manufacturing hub for global
luxury brands over the next four to five years and the manufacture of luxury items in India can
grow to US$ 500 million. The luxury products market in India likely to grow at a CAGR of 28 per
cent to reach US$ 1.2 billion by 2010. The market is expected to double by 2015, touching US$ 2.5
billion.

Consumer Confidence
The Indian consumer remains one of the most upbeat globally.
The Nielsen Global Consumer Confidence study, conducted by Nielsen, a market research company

revealed that Indians are "the most optimistic lot globally who think that their country will be out of
the economic recession in the next twelve months." India was at the top of the survey with 114
points, a remarkable 30 points above the global average of 84.

Today, the rural market accounts for a hefty share in most market segments—55 per cent of LIC
policies, 70 per cent of toilet soaps, 50 per cent of television, fans, bicycles, tea and wrist watches.
Also rural India is less affected by the global slowdown. Consequently, an increasing number of
marketers are targeting it across fast moving consumer goods (FMCGs), cars, two-wheelers and
consumer durables.

Rising interest in social networking in 2008 has made brands think seriously about online
advertising. According to a FICCI-PwC report, it is expected to touch US$ 212.91 million in 2011
from the current US$ 58.1 million.
Companies such as HUL, Tata Tea, Titan, HDFC among others are using peer-topeer network on
sites like Facebook or Twitter to spread product reviews and create a buzz around the brand.

Brand Consciousness
A Nielsen Global Luxury Brands study (March 2008) reveals that India has the third highest brand-
conscious population in the world—with only Greece and Hong Kong ahead of it. Thirty five per
cent of Indian consumers, who participated in the survey, showed inclination towards buying
branded products.
This rise in brand consciousness has engineered a noticeable change in the luxury landscape in
India. Growing at an annual average rate of 26 per cent, India has been identified as a significant
driver in the global luxury market.

There is hardly anything that India cannot indigenously build. Ships planes, cars, vehicles of all
kinds and now missiles are all built in India with Indian labour and expertise.
A younger generation will take all these for granted but it is only an older generation that has seen
India cower under western dominance that can appreciate the great changes that have come over
Indian society.

On the strength of what India has achieved in the last half a century one can confidentially assert
that within the next quarter century India will be a force to reckon with and will be counted among
the first three or four most powerful nations in the world. That is not only a dream and a hope but
something that will be seen as a reality. Then indeed can any Indian say with truth and pride:
'Mera Bharat mahan'.