The
Great Indian Market 2005
- A Summary of NCAER Report
While the size of the Indian consumer market is growing
by 15-20 per cent per annum in the case of motorcycles and
roughly 50 per cent in the case of cellular phones, estimating
the market still remains a complicated task. Where does
the consumer live, in urban India or in rural areas, in
small towns or in big ones? Is it more fruitful to concentrate
marketing efforts in rural Haryana than it is in urban Bangalore
or Kolkata? Do consumption patterns differ in urban and
rural areas for households in the same income or occupation
group - that is, do middle class households in urban areas
have different spending habits as compared to their rural
counterparts, and do urban salary earners spend differently
from rural ones? How does this behaviour change across regions,
even states and cities? The study seeks to answer these
questions.
Since consumer preferences change all the time, and the
demand for one product is often related to that of other
products, the report gives details of household ownership
of various goods in relation to others. So, for instance,
a marketer can easily see how many car-owning households
have medical insurance today in comparison with the number
of motorcycle-owning households that have such policies,
and arrive at a conclusion as to which segment to tap for
increasing medical insurance policies.
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The Great Indian Market 2005 - a study by National Council
of Applied Economics and Research (NCAER), in association
with Business Standard, is based on the annual survey of
households in various income brackets, covering over 300,000
households across 858 villages, 660 towns and cities in
221 districts all over India, carried out in 2001-02. The
study also combines some of the results of another study
by NCAER titled “The Great Indian Middle Class (2004)”.
NCAER has been evaluating the changes in household income
patterns and related changes in consumer & demand behaviour
across regions, States and cities, through annual surveys
since 1986 except for three missed years.
NCAER was founded in 1956 as an independent body to give
support to both the government and the private sector in
empirical economic research.
Middle Income Class Consumers in Rural India vis-a-vis
their Urban Counterparts
 |
Difference of Consumption Patterns across Occupation
Groups in Urban and Rural areas
Around 41 per cent of urban households owned two wheelers
in 2001-02 versus around 11 per cent for rural areas and
by the end of the decade this difference will change to
71 per cent versus 31 per cent.
Difference in Consumption Patterns across towns
of different sizes
Just 35 per cent of households in towns with under five
lakh people owned two-wheelers in 2001-02 as compared to
50 per cent for towns with 5-10 lakh persons and 63 per
cent in the case of towns with 10-50 lakh persons. The figure
goes down to 38 per cent in the case of towns with over
50 lakh persons. By 2009-10, such differences are likely
to reduce.
Country's Income Distribution - The Past & the Future
In 1995-96, 80 per cent of Indian families earned less than
Rs. 90,000 a year, this fell to 72 per cent by 2001-02 and
is projected to fall to 51 per cent by 2009-10. In contrast,
those earning over Rs. 10 lakh a year rose from 0.2 per
cent to 0.4 per cent and will rise to 1.7 per cent by the
end of the decade.
Growing
Prosperity
(Income figs, in Rs. '000 per annum at 2001-02 prices,
households in '000s) |
Classification |
Income
class |
1995-96 |
2001-02 |
2009-10 |
| Deprived |
<90 |
131,176 |
135,378 |
114,394 |
| Aspirers |
90
- 200 |
28,901 |
41,262 |
75,304 |
| Seekers |
200
- 500 |
3,881 |
9,034 |
22,268 |
| Strivers |
500
- 1000 |
651 |
1,712 |
6,173 |
| Near
Rich |
1000
- 2000 |
189 |
546 |
2,373 |
| Clear
Rich |
2000
- 5000 |
63 |
201 |
1,037 |
| Sheer
Rich |
5000
- 10000 |
11 |
40 |
255 |
| Super
Rich |
>10000 |
5 |
20 |
141 |
| |
Total |
164,876 |
188,192 |
221,945 |
|
Effect of Change in Income Distribution on Demand
for various Consumer Durables in Future
While just two per cent of households who earned under Rs.
90,000 per annum owned motorcycles in 2001-02, this rose
dramatically to 15 per cent in the case of households earning
between Rs. 90,000 and Rs. 2 lakh and to 29 per cent in
the case of the Rs. 2-5 lakh earning households. As more
people come into the higher income groups, demand increases
more than proportionately.
Importance of Top Cities in the Demand for Major
Durables
The top 67 cities account for 44 per cent of scooter demand,
27 per cent of motorcycle demand and 47 per cent of demand
for regular-sized colour televisions. In terms of usage
too, the top cities are way ahead. While just 3 per cent
of families owned a car/jeep all over the country, the figure
was as high as 15 per cent in these cities.
Usage of Durables Differ across Cities
Over 30 per cent of Delhi-ites own cars/jeeps in comparison
with 21 per cent in the case of Mumbaikars though at higher
income levels, it is Mumbai that has the lead.
Most Preferred Secondhand Goods
Close to 15 per cent of all scooters bought are second-hand
as compared to around 11 per cent in the case of motorcycles.
For white goods like washing machines and refrigerators
these figures are under three per cent. In the case of wage-earners,
over a fourth of all two-wheelers bought were second hand;
in the case of households with an income of over Rs. 3 lakh,
a mere four per cent bought secondhand scooters.
Correlation in Demand
The analysis shows, for instance, that while 62 per cent
of two-wheeler-owning households already owned televisions
in 2001-02, only 12 per cent of them owned cars/jeeps, clearly
identifying the two-wheeler segment as an ideal candidate
for switching to low-end cars such as the Maruti 800.
Correlation
in demand |
Product |
2-Wheeler |
Cars/Jeeps |
TVs |
Refrigerators |
LIC
policies |
| 2-Wheeler |
100 |
12.3* |
62.1 |
21.8 |
30.7 |
| Cars/Jeeps |
70.9 |
100 |
81.8 |
83.8 |
54 |
| TVs |
41.6 |
8.8 |
100 |
26.3 |
24.6 |
| Refrigerators |
68.8 |
18.6 |
86.6 |
100 |
40.1 |
| LIC
policies |
41.8 |
12.8 |
62.6 |
43.2 |
100 |
*
12.3 per cent of 2-wheeler owners already own a
car/jeep as well |
Equally important, just six per cent of this very large
population of two-wheeler-owning households had credit cards
as opposed to around 14 per cent in the case of car/jeep
owning households.
While credit card sellers would do well in both segments
of households considering just how low the usage of credit
cards was, two-wheeler owners would make a better target
market given their low usage as well as much larger number
in comparison to those owning cars/jeeps.
Similarly, according to the survey, 54 per cent of those
owning cars already owned at least one life insurance policy
(at the time of the survey, LlC was the only company that
sold such policies) as compared to just 30 per cent of two-wheeler
owning families that had a life insurance cover.
There is, naturally, a big difference in the correlation
matrix across urban and rural areas. While a fifth of the
two-wheeler owners in urban areas owned cars/jeeps in 2001-02,
the figure was under two per cent in rural areas.
While six per cent of two-wheeler owners also owned air
conditioners in urban areas, the figure was well under half
a percentage point in rural areas.
Around a third of two-wheeler owners also owned a refrigerator
in urban areas compared to under a tenth in rural areas
(the all-India figure is around 22 per cent).
Equally important, of course, is to keep in mind the total
size of the market for each product. In overall terms, quite
obviously, the number of television owning families (45
per cent of Indians owned televisions in 2001-02) is much
larger than the ones owning two wheelers (about 20 per cent).
So even if the correlation in demand is lower for televisions,
the number of potential targets is higher.
Interestingly, though, by the end of the decade, this difference
narrows down considerably (63 per cent will own televisions
as compared to 44 per cent for two-wheelers, 28 per cent
will own motorcycles as compared to 31 per cent with regular-sized
colour televisions).
Rural Market Rise
By the end of the decade, 11 % of car demand will come from
rural areas.
Thanks to the rapid rise projected in rural incomes over
the next few years, especially in the upper income groups,
the share of demand from the rural areas is projected to
rise steadily - by the end of the decade, roughly 11 per
cent of the country's demand for cars/jeeps will come from
rural areas.
While some part of this is clearly due to the fact that
rural areas are home to the majority of the country's population,
the gap between rural and urban usage patterns is also projected
to decline significantly.
At the aggregate level, nearly a tenth of all urban households
owned a car/jeep in 2001-02 compared to a mere 0.3 per cent
in rural areas. By the end of the decade, while urban usage
will grow to 26 per cent, rural usage will increase to 1.2
per cent.
That is, in 2001-02, urban usage was nearly 34 times as
large as rural usage but by the end of the decade, this
will fall to under 22.
In the case of scooters, this difference is projected to
fall from 5.9 to 4.7, from 2.5 to 1.8 in the case of motorcycles
and from 3.4 to 2.5 in the case of mopeds. In the case of
the upper income groups (those who earn more than Rs 180,000
per annum in 2001-02 prices), the change is even more stark.
In 2001-02, the urban to rural usage of cars was 7.3 but
by 2009-10, this is projected to fall to 5.3 times in the
top income group.
As a result, while roughly 2 per cent of 1995-96 demand
came from rural areas and this rose to 8 per cent in 2001-02,
this is expected to rise to just under 11 per cent in 2009-10.
Changing Income Demographics will Drive Changes
in Demand
The rapid rise in the country's middle and upper income
classes, more than overall GDP growth per se, is likely
to lead to a dramatic hike in the demand for big-ticket
items like motorcycles, refrigerators and cars/jeeps.
Rapid
rise in incomes
Per
cent of households in each income group that own
product |
Income
in
Rs. '000 |
Scooters |
Moter-
cycles |
Cars/
Jeeps |
Regular
|
| Colour
TVs |
Refrigerators |
| Less
than 90 |
3 |
2 |
0 |
5 |
4 |
| 90-200 |
20 |
15 |
4 |
40 |
34 |
| 200-500 |
30 |
29 |
29 |
74 |
63 |
| 500-1000 |
32 |
34 |
48 |
69 |
59 |
| 1000-2000 |
24 |
35 |
73 |
92 |
70 |
| 2000-5000 |
23 |
44 |
84 |
113 |
79 |
| 5000
and above |
22 |
56 |
175* |
116 |
103 |
| All
India |
8 |
7 |
3 |
17 |
14 |
*
means each family has 1.75 cars on an average |
As a result, the number of households owning cars will more
than double from around 4 per cent right now to over 9 per
cent by the end of the decade, that for scooters will remain
stagnant at around 8 per cent, will double for motorcycles
to over 28 per cent.
In terms of demand, this will mean demand for cars/jeeps
will easily cross the 3 million mark, motorcycles will nearly
touch the 8.5 million mark and regular sized colour TVs
the 10 million mark.
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Demand for all automotive categories, which grew by under
10 per cent between 1995-96 and 2001-02 will grow by 1.5
times this between 2005-06 and 2009-10 while growth in demand
for TV sets of all types will more double, from 4.6 per
cent to 9.7 per cent annually in the same period.
Much of the increased demand, according to Dr Sanjay Dwivedi,
a key member of the team that worked on the project, is
not so much demand from existing households in various income
groups as it is the one emanating from the migration of
households into upper income groups.
NCAER's sample shows, for instance, that just two per cent
of those with a family income of less than Rs. 90,000 p.a.
owned a motorcycle in 2001-02.
In the income group above this, that is those earning between
Rs. 90,000 and Rs. 2 lakh a year, the number owning motorcycles
is as high as 15 per cent. And in the Rs. 2-5 lakh income
earning households, around 29 per cent owned motorcycles.
The same is true of most other categories. Naturally, then,
as families move up the income ladder, their consumption
habits change dramatically, giving rise to a more than expected
(based on the usual GDP growth figures, that is) surge in
demand.
NCAER earlier forecast that even if India's GDP grows by
around 6.75 per cent per annum till the end of the decade,
the income demographics will become unrecognisable.
In 1995-96, 80 per cent of Indian families earned less than
Rs 90,000 per annum, this fell to 72 per cent in 2001-02
and will further fall to 51 per cent by the end of the decade.
Just three per cent of families earned between Rs. 2-10
lakh in 1995-96, this doubled by 2001-02 and is forecast
to rise to 13 per cent by the end of the decade. Those earning
over Rs. 10 lakh, around 0.2 per cent of the population
in 2001-02, will rise to 1.7 per cent by the end of the
decade.
Demand for Secondhand Goods
With secondhand cars/jeeps accounting for around a seventh
of the total demand for such vehicles in 2001-02, it's hardly
surprising that auto-giant Maruti Udyog has gone in for
a used-car business, True Value.
When it comes to scooters also, a seventh of demand is for
used vehicles. In the case of motorcycles, just around a
tenth of those purchased in 2001-02 were second-hand.
There is, naturally, a much higher demand for used vehicles
in lower income groups, and, according to the NCAER, close
to a fifth of all purchases of two-wheelers by households
earning less than Rs. 90,000 per annum in 2001-02 were secondhand
while the figure was a mere 4 per cent in the case of households
earning over Rs. 300,000 per annum.
As a result, around two-thirds of secondhand two-wheelers
bought in 2001-02 were bought by households which had an
annual income of under Rs. 90,000 per annum. The highest
proportion of cars, 40 per cent of the total, however, was
bought by households with an annual income between Rs. 90,000
and Rs. 135,000 per annum.
Households' purchase patterns differ dramatically across
rural and urban areas. While under 14 per cent of urban
households in the category of those earning below Rs. 90,000
per annum bought second-hand two-wheelers in 2001-02, the
figure was nearly 20 per cent for their rural counterparts.
For cars, not surprisingly, just five per cent of rural
households earning under Rs. 90,000 per annum bought used
cars compared to over 16 per cent in the case of their urban
counterparts.
The study also estimates secondhand purchases according
to the occupation of the head of the family, and found that
cultivator households bought the largest proportion of used
cars and scooters at the all-India level - 26 per cent of
their scooter purchases in 2001-02 were second hand.
While the average price of a new car was Rs. 2,15,000 in
2001-02, the average price paid for a secondhand car in
that year was Rs. 1,06,000. In the case of two-wheelers,
compared to an average price of Rs. 35,000 for a new machine,
a secondhand one cost Rs. 14,000.
In the case of new cars, around half those bought were financed
while the figure was a lower 25 per cent in the case of
two-wheelers and under 9 per cent in the case of washing
machines.
The bottomline: India's rich are doing well, but
the growing middle class is the real story here.
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