Changing income demographics to drive change.
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, according to the National Council of Applied Economic Research’s (NCAER’s) latest report, “The Great Indian Market”.
The report is based on an extensive all-India survey of over 300,000 households and contains projections till the end of the decade.
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.
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.
Demand for white goods like refrigerators and washing machines will rise less dramatically. For consumables like soaps and shampoos, however, demand growth is expected to taper off - in the case of shampoos, this will fall from around 21 per cent in the 1995-96 to 2001-02 period to around 11 per cent annually between now and the end of the decade.
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 per annum 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 has 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 unrecognizable.
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.