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Indian Income-Class

Opportunities

Indian Income-Class Opportunities - 2012

2 | P a g e © Gyan Research and Analytics Pvt. Ltd., 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



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 country’s 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

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.

54

3522

41

43

36

4

19

32

11 9

12

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2015F 2025F

Share of Population in Each Income Bracket

Globals

Strivers

Seekers

Aspirers

Deprived

Note: Figures are rounded to the nearest integer and may

not add upto 100%

Source: MGI Report



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.



2. Growth Drivers

i. Strong Economic Growth

The Indian economy has shown

steady growth in the last

decade, despite the global

economic meltdown. Though,

in 2011 the economy fell

sharply to 7.2 percent growth

from 10.6 percent in the

previous year, due to mounting

inflation and rising crude oil

prices in the global market.

However, the International

Monetary Fund (IMF) has

predicted that the Indian

economy will continue to grow

at a steady rate of about 8

percent in the next five years.

This represents a flood of

opportunities for the

companies in the Indian

market.

With economic growth has

come consistent rise in per

capita income. This has given

the Indian middle-income

households the luxury of having more disposable income to spend.

2,600

2,900

3,200

3,5003,700

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2007 2008 2009 2010 2011E

USD

India's GDP per Capita (PPP)

Source: CIA, The World Factbook

bsite

10.0

6.26.6

10.6

7.2 6.97.3

8.1 8.2 8.1 8.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2007 2008 2009 2010 2011 2012F2013F2014F2015F2016F2017F

Pe

rce

nt

India's GDP Growth Rate

Source: IMF, World Economic Outlook

bsite



ii. Private Consumption

Private consumption in the

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.

iii. Favorable Demographics

India’s demographics is one of the

primary reasons for its economic

growth. The Planning Commission’s

prediction that around 64 percent of

the country’s population will be in the

age bracket of 15 – 59 years by 2012

augurs well for India’s economic as

well as industrial growth.

8.79.2

7.1 7.0

8.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

FY2007 FY2008 FY2009 FY2010 FY2011

Pe

rce

nt

Private Consumption Growth Rate in India,FY2007 - FY2011

Source: Planning Commission

34 30 28

59 62 64

7 8 8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2007 2012F

India's Changing Demographic Profile

Under 15 15-59 60+

Source: Planning Commission, India

bsite



iv. Increase in Disposable Income

Disposable income plays a

pivotal role in determining the

growth of several industries

such as fast moving consumer

goods (FMCG), consumer

durables, automobiles, tourism,

education, real estate, telecom,

entertainment, banking &

financial services, and many

more. These industries are

interested to know where the

disposable income is

concentrated in terms of

geography, occupation, age,

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

marketing campaigns.

2,91,0073,32,774

3,73,454

4,48,877

5,12,213

0

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000

FY2006 FY2007 FY2008 FY2009 FY2010

INR

mill

ion

Personal Disposable Income in India, FY2006 - FY2010

Source: Reserve Bank of India



3. Emerging Opportunities in the Indian Market

3.1 The Automobile Sector

The Indian automobile industry

accounts for around 4 percent of

India’s GDP and is one of the key

constituents of the economy.

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

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 two-

wheeler 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

world’s seventh-largest automobile

market, and the third-largest by 2030.

30,476

36,61233,250

43,296

58,583

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

FY2007 FY2008 FY2009 FY2010 FY2011

USD

mill

ion

Turnover of Automobile Industry in India, FY2007 - FY2011

Source: SIAM

bsite

16%

5%3%

76%

Market Share of Automobile Industry in India, FY2011

Passenger Vehicles Commercial Vehicles

Three Wheelers Two Wheelers

Source: SIAM



3.2 The FMCG Sector

India’s 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 India’s cost-

competitive labour to gain advantage

in the international market.

Organised retail has enhanced the

distribution of India’s FMCG sector.

The country’s rural population has

received great impetus through

higher minimum support price (MSP),

loan waivers and disbursements

through the Mahatma Gandhi

National 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.

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.

15.717.8

21.3

24.2

27.9

0

5

10

15

20

25

30

2006 2007 2008 2009 2010

USD

bill

ion

Market Size of Indian FMCG Industry,2006 - 2010

Source: IBEF

bsite

43%

22%

12%

8%

4%

4%2%

5%

Market Share of FMCG Sector, 2010

Food Products

Personal Care

Fabric Care

Hair Care

Households

OTC Products

Baby care

Others

Source: Various Published Resources

bsite



3.3 The Consumer Durables Sector

The Indian consumer durables

industry is the one that has majorly

benefitted from the economic

escalation of the country. Rising

disposable income, growing

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.

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.

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.

3.84.2

4.75.2

6.3

0

1

2

3

4

5

6

7

FY2006 FY2007 FY2008 FY2009 FY2010

USD

bill

ion

Consumer Durables Market Size in India, FY2006 - FY2010


bsite

67%

33%

Composition of Consumers in India, FY2010

Urban Rural


bsite



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,

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.

34.237.6

41.445.5

50

0

10

20

30

40

50

60

2006 2007 2008 2009 2010

USD

bill

ion

Indian Healthcare Industry, 2006 - 2010

Source: Gyan research and Analytics



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, people’s purchasing power has definitely gone up by a

few notches in the past two decades. With a rising economy and greater income, the consumer-

oriented 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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