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Spotlight on India: Consumers

April 12th, 2017

Euromonitor International predicts that India will be the fastest-growing major economy in 2017. India was the world’s sixth largest consumer market in 2016 in US$ terms and we predict it will move up to third place by 2030, ahead of Japan and Germany.

The Consumers team turn the spotlight onto India, from the Digital Consumer, Households, Income and Expenditure, Lifestyles and Population angles. Insights include a polarised consumer market as a result of growing income inequality, an interest in natural products by Indian consumers and a demographic dividend driven by a youthful population, which will result in the largest working-age population globally by 2030.

Digital Consumer: Mobile will drive India’s digital commerce uptake

Despite an increase in network investment by the government and private operators, India trails other markets in terms of digital connectivity. These challenges, coupled with a large informal retailing sector and a strong cash culture, continue to hold back digital commerce uptake. In fact, India ranks last out of 50 nations in Euromonitor International’s Digital Consumer Index. However, the country’s huge youth population, growing smartphone base and mobile internet coverage, and expanding online shopping culture are expected to drive digital commerce growth.

The November 2016 demonetisation policy, which aimed to strip cash out of the economy, provided an initial boost to digital commerce as the prevalence of digital wallets became more ubiquitous. More importantly, it has inspired technology vendors to construct an ecosystem that will better support card-based payments. The launch of new mobile payment applications will propel mobile-based purchases, with this small-screen device outpacing the expected spend by other device types in the forecast period.

Digital Purchases in India by Device: 2016-2020

Source: Euromonitor International from trade sources/national statistics

Note: Figures for 2017-2020 are forecasted

Households: Water access creates bottlenecks for white goods uptake

Despite India’s strong economic performance and progressive reformist policies, the country’s rural areas remain blighted by poor access to water. With one of the largest rural markets in the world (180 million rural households in 2016), India has become extremely attractive as a destination for domestic appliances. However, as only half of the country’s homes have access to water supply, kitchen durables and bathroom goods have limited appeal. This is a major bottleneck for white goods such as washing machines, dishwashers, showers and baths, which are sold locally by brands like Siemens, Bosch, Whirlpool, and Haier.

Nonetheless, the growth of the country’s large middle class and continued expansion of urban hubs has driven uptake of water-dependent durables. For example, over 2011-2016, India was the fastest-growing market for retail sales in Asia for white goods manufacturer Whirlpool, which has a large line of washing machines, tumble dryers and dishwashers.

Size and Growth of Whirlpool Corp Appliances Retail Sales in Asia Pacific by Country and by Category: 2011-2016

Note: Figures represent US$ retail value, constant terms

Income and expenditure: Rising inequality polarises the consumer market

India has the world’s sixth largest consumer market with total consumer spending exceeding US$1.3 trillion in 2016. Income and consumer expenditure in India have been rising steadily on the back of the country’s strong economic expansion. However, the majority of the population remains on low incomes and with little wealth while the income gap is also widening:

  • In 2016, 96.3% of the country’s population aged 18+ (over 825 million adults) had an annual disposable income below US$10,000 and a net wealth of less than US$20,000;
  • This illustrates the high inequality of income and wealth, which has been rising in India. Between 2011 and 2016, India’s Gini index (an index between 0-100% with 0% indicating absolute equality and 100% indicating total inequality) increased from 39.9% to 41.6%, and is set to reach 43.4% in 2030;
  • The concentration of the population at the low-income low-wealth segment together with rising income inequality means that India’s consumer market is largely defined by the polarisation between the rich and the poor. This will generate opportunities for businesses to serve consumers at both ends of the income distribution. In particular, India’s bottom of the pyramid (BOP) is massive in terms of consumer numbers and, therefore, worth investing in if businesses employ a low-margin high-volume strategy and innovate to make goods and services as affordable as possible. While the lower segment of India’s BOP presents opportunities for the essentials of food and non-alcoholic beverages, the upper segment of its BOP has some potential for discretionary spending on categories such as transport, alcoholic beverages and tobacco, and clothing and footwear.

Income and Wealth Distribution in India: 2016 and 2030

Source: Euromonitor International’s Income and Wealth Distribution Model

Note: Data for 2030 are forecast. Data are in constant 2016 prices.

Lifestyles: Growing interest in natural products among Indian consumers

While usage of herbal and Ayurveda products has been closely linked with traditional Indian lifestyles for centuries, in recent years growing awareness of product formulation, linked with a desire to avoid potentially hazardous chemicals, has solidified interest in natural products among Indian consumers. Indeed, trust in “natural” labels is widespread; over 60% of Indian respondents to Euromonitor’s 2016 Global Consumer Trends survey agree that they find “natural” to be a trustworthy product label. In some categories, Indian consumer interest in natural product features is even greater than their desire for a strong or well-known brand name, with a commensurate willingness to pay more to avoid chemicals (71% of Indian respondents define “natural” as “chemical free”).

Many brands and retailers, both local and multinational, are moving to capitalise on this trend by offering products with traditional herbal and Ayurvedic ingredients to the Indian market. For example, in late 2015, Unilever acquired Ayurveda-centered brand Indulekha to better align its local strategy.

Desire and Willingness to Pay for Natural and Brand Name Products among Indian Consumers: 2016

Source: Euromonitor International Global Consumer Trends Survey, 2016

Population: India to have the world’s largest working-age population by 2026

India is home to 17.6% of the global population and is set to overtake China to become the world’s most populous country in 2025, reaching 1.5 billion in 2030:

  • In 2016, India had 17.7% of the global population of working age (15-64) which was the second largest proportion in the world behind China. In 2026, India is expected to overtake China as the country with the largest working-age population in the world;

Working-Age Population in India vs. China: 2017-2030

Source: Euromonitor International’s Future Demographics Model

Note: Data for 2017-2030 are forecast.

  • More working-age will contribute to boosting productivity, increasing domestic production and expanding the consumer market. International businesses across a wide range of sectors – from auto makers to smartphone manufacturers – are increasingly setting up production in India to take advantage of the country’s youthful and low-cost workforce, along with a burgeoning domestic market;
  • In order to fully harness the demographic dividend, the Indian economy must grow robustly and create sufficient employment and skilled labour opportunities, especially outside of unproductive agriculture and traditional industries, as well as for women of working age. In 2016, only a third of Indian women aged 15-64 were active in the labour force as a result of occupational segregation, which leads to a concentration of women in unproductive industries such as basic agriculture, basic sales and elementary services, and handicraft manufacturing.

Read more about Indian consumers in the following Strategy Briefings:

Boom or Bomb: India’s Demographics and Market Impact

Asia Pacific Digital Landscape: Mobile Connects an Otherwise Diverse Region

FMCG in India: Understanding a Billion Needs

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