I love reading the economist, when I get the time, that is. Too bad they don’t cover India very often. But when they do publish something, they offer a new perspective to look at things. An outsider’s prespective. So I was a little surprised when they published not one, but two different articles about the Indian economy in January this year. Revealing and thought provoking, the articles where like migthy sucker punches. What was even more hilarious was the war-of-dumb-words going on in the comments section of both those articles. Patriotic Indians debating both sides by offering proof citing other media articles. I resisted the temptation to join the cockfight. Pretty hard to do when the articles were spot on.Before we proceed, please read these articles on how the magazine works internationally, and why their writers are anonymous.The two new articles about India basically say that the Indian middle class has no spare money to spend on world-class luxuries, as they are getting poorer and poorer. And the whole idea that India is the fastest growing economy and the next place for international brands to set shop is a sham. Something I had long suspected. Most international brands like Apple , Amazon and Google have already learnt this truth, and others are catching on. The articles then go to explain as to how this happened and why the trend still continues.
Why is the middle class of the economy important ? These would be the people whose income is increasing and are more likely to purchase more products and services, specially from new gen companies , probably international markets. The upper class can be considered saturated, they might have already purchased luxuries. And the lower class, well, they can’t be sold.Go over to wikipedia’s article and sort the list of countries according to income classes. India has the lowest percentage of middle and upper class.
Other points which stood out.
Ouch !The truth can be distilled out easily, even after becoming the world’s fastest growing economy, Indians do not have the purchasing power that their counterparts in other developing or developed countries have. Indians are spending, but they only buy the cheapest options in every category. Not because they are saving the rest, but because that is all that they can afford. Indian customers buy the cheapest chines manufactured phones and tvs, instead of those fancy western brands. They buy made in India apparel and eat at low cost restuarants, instead of shopping from international brands and eating at international fast food chains. If a middle class family’s bread earner gets a promotion or comes to any extra wealth, they would rather invest that money in better healthcare or save it in a long term account , instead of purchasing non-essentials for the family. They see every expenditure as a liability, and every opportunity to save as a chance to grow. This is not the kind of market which would upgrade their smartphones every few months, or would eat at a five star restuarant to celebrate occasions.But we have known this for years. This is the very defnition of the Indian middle class. Spend only on needs, not on greeds.Some other eye openers: Apple made 0.7% of its global revenues in India in the year to March 2017.Facebook, though it has 241m users in India, probably the most in the world in one country, registered revenues of just $51m in the same period.Google is growing more slowly in India than in the rest of the world.Despite two decades of investment McDonald’s has hardly any more joints in India than in Poland or Taiwan.Starbucks says it has big plans for India but has opened about one new coffee shop a month over the past two years, bringing its total to around 100—on a par with Utah or the United Arab Emirates. A new Starbucks opens in China every 15 hours, adding to 3,000 already operating.Inditex, Zara’s parent firm, has 46 clothes shops in India, fewer than in Ireland, Lithuania or Kazakhstan.Hindustan Unilever, which purveys sachets of shampoo for just a few rupees, has seen virtually no sales growth in dollar terms since 2012.Even after years of enticing customers with heavily discounted wares, perhaps 50m online shoppers are active in India—roughly, the richest 5-10% of the population.India is now the fourth largest auto market, having overtaken Germany, but 80% of those sales was to Indian company Maruthi, which makes the cheapest, or most affordable vehicles in the country. So in terms of money, this is still among the cheapest markets. International brands have not succeeded in India.Even for someone in the top 10% of Indian earners, an annual Netflix subscription can cost over a week’s income.Apple ads may plaster Mumbai, Delhi and Bangalore, but for only one in ten Indians would the latest iPhone represent less than half a year’s salary.On and on..The reason for this downward spiral are many. First is the bureacracy. Or should I say bureacrazy.Another is the informal industry. 93% of Indians work in the informal sector, earning less than 10 dollars a day.Then there is the education, or lack of.
So, whats the takeaway. The illusion is wearing off. Soon international brands will realize that the only way they can cater to this dissiappearing market is to offer localized, cheaper and affordable options. They may get the market in term of units sold.But not for value earned.x
x
