The rise of India’s neo middle class

[Nilgiri]

http://www.livemint.com/Politics/HY9TzjQzljCZNRHb2ejC2H/The-rise-of-Indias-neo-middle-class.html

The rise of India’s neo middle class

The story of millions of Indians whose lives have improved from a generation ago—in areas like income and education—and who continue to aspire for a better standard of living

The consumption by Indians has increased more than threefold in the past 10 years and is poised for similar growth in the next decade—leading to a tenfold increase in 20 years—a feat at this scale that has happened very few times in human history. Photo: Pradeep Gaur/Mint

Kavita is a 35-year-old primary school teacher living in Nagpur. Her husband, Prakash, is an accountant working with a trading company. Together they earn about Rs90,000 per month. Their daughter Roshni, 8, attends an English-medium, ICSE (Indian Certificate of Secondary Education) school. They are all busy on weekdays, but go out for lunch, movies or shopping on Sundays—Roshni calls it their ‘funday’. The Rs90,000 income may not seem a lot, but it is a big jump for Kavita, whose parents belonged to the ‘lower middle class’. Kavita grew up in a joint family in Ramtek, a small town near Nagpur, Maharashtra. Her father was a clerk with a public sector bank, while her mother was a housewife. Kavita’s mother never went beyond primary school herself, but she made sure her daughter completed her graduation. She had to fight with the elders in the family for Kavita to do that. Roshni’s dream is to study at a premier medical school and become a doctor. Kavita is already saving up so that she can make her daughter’s dream a reality. This is not just Kavita’s story. This is the story of millions of Indians whose lives have improved from a generation ago—with respect to areas like income and education—and who continue to aspire to a better standard of living.

Most of the narrative on the Indian consumer focuses on how the Rs83 trillion consumption economy is poised to grow in double digits to become the third largest in the world in the next decade. No doubt, the numbers on the size of the consumer economy are mind-boggling: the consumption by Indians has increased more than threefold in the past 10 years and is poised for similar growth in the next decade—leading to a tenfold increase in 20 years—a feat at this scale that has happened very few times in human history.

We believe that the full discussion on this should not only look at the size of the opportunity, but also understand the shape of this opportunity and the underlying consumer trends.

The shape of the consumption function has changed and will continue to evolve in the coming decades. Some of these are secular trends from the past, increasing at a steady pace—and shall become noticeably significant in the next decade.

Rise of the ‘affluent middle class’: Historically, and even in 2015, the largest set of Indian consumers has been those belonging to the ‘next billion’ income segment, accounting for 45% of the population and 39% of total spends. The middle class—which was the promise for many companies since the mid-1990s—has been growing but has never been the largest segment. But by 2025, the ‘affluent’ consumer segment will become the largest, accounting for about 40% of all Indian consumption, up from about 26% in 2015). This ‘affluent’ segment resembles the global middle-class consumer, and would herald the rise of the middle class in its most literal sense for the first time.

Shift in spending from basics to more: Roti, kapda and makaan have historically represented the largest expenditure for Indians. Over the past few years, however, there have been two notable changes in consumer spending patterns. The first is a rise in the total amount spent on education, leisure and telecommunications, driven by both greater demand, as well a change on the supply side. The second is the shift towards better, higher-priced sub-segments in the same historical categories ranging from food to consumer durables.

Continuing rise of the urban segment: India’s rate of urbanization has been very different from most other countries—it is not concentrated in a few cities, like in Indonesia or Thailand; not as fast as in China; and it is not as dispersed as in the US. It has been uniquely Indian. We estimate that about 40% of India’s population will live in urban areas by 2025, accounting for more than 60% of the total consumption. Interestingly, it will be the rise of the many cities #50 to 500 and not the megacities that will account for a large part of this growth.

Rise in the nuclear family set-up: The great Indian joint family may be the focus of Hindi cinema, but in reality the rise of the nuclear family has been a slow and steady phenomenon. It has been driven by multiple factors. Today, nearly 70% of Indian households have a nuclear construct, representing a 13% increase over the past two decades. While this has many social implications, from a pure consumption point of view, it presents a unique opportunity—for the same income level, nuclear families spend 20-30% higher per person than joint families.

The rise of the ‘digital Indian’ is going to be the third certainty after death and taxes

The trends mentioned above have been steadily increasing over the past 20 years, but there is one big discontinuity that is a more recent phenomena. Two decades earlier or even 10 years ago, no one could have imagined the impact of digital technologies on the average Indian. For starters, the numbers are mind-boggling. The total number of Indians with access to a cellphone is already close to a billion. The number of people in the country today with Internet access is already 300+ million—the size of the US population. Over the next decade, this number is expected to rise to 800+ million.

This dramatic increase is going to be accompanied by a change in the profile of the average user. The first 100 million ‘digital Indians’ were largely men, urban, educated, earning higher incomes, and typically, young. The 400 to 500 millionth ‘digital Indians’ are going to be the opposite—rural, mid-income, older, with more women included. This digital democratization will have a profound impact on how Indians see, select, study, spend, save, socialize and sell. Digital technologies will fundamentally change the nature of these interactions due to the following three reasons:

Two-way, real-time, superior information: Digital channels are not only providing consumers with access to more information, but also bringing about a change in the nature of retail interactions. The content available today is better—whether on Wikipedia or customized ‘webtainments’—with channels additionally facilitating near-real-time dialogue between retailers and consumers. In recent times, policymakers have also increasingly started tapping the Internet to directly connect with citizens—a case in point being the Telecom Regulatory Authority of India’s call for Net neutrality, or tweets solicited by the railway ministry.

Broader access to products and services: Geography is now truly history. E-commerce websites generate a surprisingly high share of their sales from Tier-II and Tier-III towns, due to the access they provide to consumers in these locations. The Internet is also enabling Indians to gain access to global education and healthcare. In Ajab, Gujarat, students take mathematics classes online from a teacher sitting hundreds of miles away, while villagers in Tamil Nadu now have remote access to professional advice on cataract problems.

Platform to enhance livelihood: Sufiyan Khatri, an artisan from Ajrakhpur in Kutch, has expanded his business manifold through his Facebook page. Milaap, an online crowd-funding platform, has raised Rs80 crore to fund several poor working Indians. Such digital platforms are thus empowering several entrepreneurs and artisans to enhance their selling, marketing and financing functions. The potential for these platforms lies much beyond the usual ‘buy and sell’ construct.

We believe that while the digital tsunami will have a significant impact on Indians as consumers, it has transformational potential for Indians as citizens across the framework described above. We have seen early signs of this in the way government-citizen interactions are changing, whether in the form of online redressal platforms or railway ministry tweets. At a fundamental level, the digital wave has changed the country’s administration model from a pure ‘supplicant and provider’ system to one that resembles a true democracy.

Green shoots of new trends—currently at the surface—but with potential to explode

Pride in being Indian: A couple of decades ago, many Indians looked forward to relatives visiting from abroad, bearing gifts like foreign chocolates, perfumes and even shoes. How times have changed! Today around 60% of Indians are willing to pay extra for products made in India. The ‘Generation I’, whose formative years began after 1991, has never experienced an era of rationing. They are more confident about their country’s as well as their own capabilities.

There are different ways in which this national pride has started manifesting itself. Across categories, there is an increased curiosity and excitement around exploring local roots, as evidenced by growing consumer interest in natural products in personal care, local flavours in packaged food, and hand-woven fabrics in clothing. The bundi (Nehru jacket) is back in vogue—it has been listed among the top 10 all-time global political fashion statements by Time. Forest Essentials has grown to be a premium personal care brand, and is now going international after a stake purchase by Estée Lauder. FabIndia is potentially the single largest and most profitable retail apparel brand in the country.

Half the sky—gaining its rightful share: Sakshi Malik and P.V. Sindhu and their performance at the Rio Olympics is the best exemplar of the changing role of women in India. Women in India, across urban and rural areas, are exercising greater influence. Several forces are driving this shift—changing family structure, electoral reservation for panchayats, improved healthcare, and greater media reach and focus. We believe the most important factor is a change in women’s educational levels, which has changed dramatically. The enrolment rate for girls in secondary education has increased from 45.3% to 73.7% between 2005 and 2014 and is now higher than the 73.5% for boys. Even in higher education, girls have bridged the gender gap, with the enrolment level now at 19.8%, as against 22.3% for boys. Traditionally, the school dropout rate (for Classes I to X) used to be much higher for girls, but now it is lower than that for boys. The academic performance of girls has anyway always been better than that of boys.

Apart from greater literacy levels, this trend will have a much wider impact, ranging from changed workforce demographics to greater economic independence for women and other social changes. This is not going to be a sudden change, but more like a steady, tectonic shift.

The (almost) I, me, myself generation: While the nuclear family may seem to be the new normal, the future could see a further shift in how one thinks about family. We believe that India could see a second wave of transformation—from nuclear households to singles. There has been a steady increase in the number of people in the workforce who are still single. The average age of getting married went up from 22.6 to 28 for boys and 18.3 to 22.2 for girls between 2001 and 2011. The number of single women above 20 has increased by 40% over the same period. While this is largely a metropolitan phenomena so far, it has started percolating to Tier-II cities as well.

This change has implications not only for household sizes, demographics and the economics of income and expenses, but also for the very definition of family. Anecdotal evidence and parallels from other countries indicate that these singles, who are at one level, more individualistic, also think of communities (physical and virtual) and causes (social or political) as proxies for families.

A new reality—reinvent or fall behind

That India is poised to become the third largest consuming economy is clear. It is understanding the shape of this growth that will be crucial. As we described earlier, while some elements of the past will continue, there are big shifts that cannot be ignored. These raise fundamental questions that organizations need to address.

• Cater to different price tier segments: For the first time for most Indian categories, there would be scale markets across the price tier. How should organizations think of their business models/organizations to cater to these opportunities ?

• Address the changing societal changes: There are many societal/sociological changes happening in India—the changing role of women, increased individualism, differing role of family, national pride, etc. It is clear that these need to be addressed beyond just changing the image or punchline in the advertisement. How should organizations capitalize on these changes?

• Rethink notion of market and competition: The digital world has created a paradigm where the conventional view of market access and traditional competition is being truly disrupted by differing offers and new players. How should organizations think about market/segment/competition definition?

• Rebalance of the power equation: The nature of relationship between the consumer and the company, the state and the citizen is changing. Greater transparency, reduced information asymmetry and increased voice of the individual (magnified via the digital-social medium) has resulted in a situation where the balance of power is tipping away from the large organization. How should companies and governments engage with the new consumer/citizen in a truly democratic context?

As we look ahead, one thing is clear—the New Indian is different. Who they are, what they believe, why they choose, where they shop and how they buy. Companies and governments alike will need to fundamentally reinvent themselves and create new rules of engagement to truly win in this new reality.

Abheek Singhi is senior partner and director, consumer and retail practice head—Asia Pacific, the Boston Consulting Group. Nimisha Jain is partner and director, the Boston Consulting Group.

Twenty-five years after liberalization, and 20 years after it entered India, The Boston Consulting Group collaborates with Mint on a series of articles on what lies ahead for the country over the next 20 years.

@PARIKRAMA @anant_s @Kaptaan @LA se Karachi @Bilal9 @AndrewJin @Dungeness
@proud_indian @Local_Legend @Ankit Kumar 002 @itachii @raj76 @WAJsal @Levina
@Vergennes @Taygibay @nair @SpArK @MilSpec @kaykay @Joe Shearer @Arsalan @ranjeet
@Robinhood Pandey @Blue Marlin @Mugwop @RAMPAGE @Mohammed Khaled

 

[raj76]

thats why its very important on government part to carry rural india along with urban. all we need is a good infrastructure i.e education electricity roads internet and u will see these news coming even from rural sections of india

 

[Indika]

http://www.livemint.com/Politics/HY9TzjQzljCZNRHb2ejC2H/The-rise-of-Indias-neo-middle-class.html

The rise of India’s neo middle class

The story of millions of Indians whose lives have improved from a generation ago—in areas like income and education—and who continue to aspire for a better standard of living

The consumption by Indians has increased more than threefold in the past 10 years and is poised for similar growth in the next decade—leading to a tenfold increase in 20 years—a feat at this scale that has happened very few times in human history. Photo: Pradeep Gaur/Mint

Kavita is a 35-year-old primary school teacher living in Nagpur. Her husband, Prakash, is an accountant working with a trading company. Together they earn about Rs90,000 per month. Their daughter Roshni, 8, attends an English-medium, ICSE (Indian Certificate of Secondary Education) school. They are all busy on weekdays, but go out for lunch, movies or shopping on Sundays—Roshni calls it their ‘funday’. The Rs90,000 income may not seem a lot, but it is a big jump for Kavita, whose parents belonged to the ‘lower middle class’. Kavita grew up in a joint family in Ramtek, a small town near Nagpur, Maharashtra. Her father was a clerk with a public sector bank, while her mother was a housewife. Kavita’s mother never went beyond primary school herself, but she made sure her daughter completed her graduation. She had to fight with the elders in the family for Kavita to do that. Roshni’s dream is to study at a premier medical school and become a doctor. Kavita is already saving up so that she can make her daughter’s dream a reality. This is not just Kavita’s story. This is the story of millions of Indians whose lives have improved from a generation ago—with respect to areas like income and education—and who continue to aspire to a better standard of living.

Most of the narrative on the Indian consumer focuses on how the Rs83 trillion consumption economy is poised to grow in double digits to become the third largest in the world in the next decade. No doubt, the numbers on the size of the consumer economy are mind-boggling: the consumption by Indians has increased more than threefold in the past 10 years and is poised for similar growth in the next decade—leading to a tenfold increase in 20 years—a feat at this scale that has happened very few times in human history.

We believe that the full discussion on this should not only look at the size of the opportunity, but also understand the shape of this opportunity and the underlying consumer trends.

The shape of the consumption function has changed and will continue to evolve in the coming decades. Some of these are secular trends from the past, increasing at a steady pace—and shall become noticeably significant in the next decade.

Rise of the ‘affluent middle class’: Historically, and even in 2015, the largest set of Indian consumers has been those belonging to the ‘next billion’ income segment, accounting for 45% of the population and 39% of total spends. The middle class—which was the promise for many companies since the mid-1990s—has been growing but has never been the largest segment. But by 2025, the ‘affluent’ consumer segment will become the largest, accounting for about 40% of all Indian consumption, up from about 26% in 2015). This ‘affluent’ segment resembles the global middle-class consumer, and would herald the rise of the middle class in its most literal sense for the first time.

Shift in spending from basics to more: Roti, kapda and makaan have historically represented the largest expenditure for Indians. Over the past few years, however, there have been two notable changes in consumer spending patterns. The first is a rise in the total amount spent on education, leisure and telecommunications, driven by both greater demand, as well a change on the supply side. The second is the shift towards better, higher-priced sub-segments in the same historical categories ranging from food to consumer durables.

Continuing rise of the urban segment: India’s rate of urbanization has been very different from most other countries—it is not concentrated in a few cities, like in Indonesia or Thailand; not as fast as in China; and it is not as dispersed as in the US. It has been uniquely Indian. We estimate that about 40% of India’s population will live in urban areas by 2025, accounting for more than 60% of the total consumption. Interestingly, it will be the rise of the many cities #50 to 500 and not the megacities that will account for a large part of this growth.

Rise in the nuclear family set-up: The great Indian joint family may be the focus of Hindi cinema, but in reality the rise of the nuclear family has been a slow and steady phenomenon. It has been driven by multiple factors. Today, nearly 70% of Indian households have a nuclear construct, representing a 13% increase over the past two decades. While this has many social implications, from a pure consumption point of view, it presents a unique opportunity—for the same income level, nuclear families spend 20-30% higher per person than joint families.

The rise of the ‘digital Indian’ is going to be the third certainty after death and taxes

The trends mentioned above have been steadily increasing over the past 20 years, but there is one big discontinuity that is a more recent phenomena. Two decades earlier or even 10 years ago, no one could have imagined the impact of digital technologies on the average Indian. For starters, the numbers are mind-boggling. The total number of Indians with access to a cellphone is already close to a billion. The number of people in the country today with Internet access is already 300+ million—the size of the US population. Over the next decade, this number is expected to rise to 800+ million.

This dramatic increase is going to be accompanied by a change in the profile of the average user. The first 100 million ‘digital Indians’ were largely men, urban, educated, earning higher incomes, and typically, young. The 400 to 500 millionth ‘digital Indians’ are going to be the opposite—rural, mid-income, older, with more women included. This digital democratization will have a profound impact on how Indians see, select, study, spend, save, socialize and sell. Digital technologies will fundamentally change the nature of these interactions due to the following three reasons:

Two-way, real-time, superior information: Digital channels are not only providing consumers with access to more information, but also bringing about a change in the nature of retail interactions. The content available today is better—whether on Wikipedia or customized ‘webtainments’—with channels additionally facilitating near-real-time dialogue between retailers and consumers. In recent times, policymakers have also increasingly started tapping the Internet to directly connect with citizens—a case in point being the Telecom Regulatory Authority of India’s call for Net neutrality, or tweets solicited by the railway ministry.

Broader access to products and services: Geography is now truly history. E-commerce websites generate a surprisingly high share of their sales from Tier-II and Tier-III towns, due to the access they provide to consumers in these locations. The Internet is also enabling Indians to gain access to global education and healthcare. In Ajab, Gujarat, students take mathematics classes online from a teacher sitting hundreds of miles away, while villagers in Tamil Nadu now have remote access to professional advice on cataract problems.

Platform to enhance livelihood: Sufiyan Khatri, an artisan from Ajrakhpur in Kutch, has expanded his business manifold through his Facebook page. Milaap, an online crowd-funding platform, has raised Rs80 crore to fund several poor working Indians. Such digital platforms are thus empowering several entrepreneurs and artisans to enhance their selling, marketing and financing functions. The potential for these platforms lies much beyond the usual ‘buy and sell’ construct.

We believe that while the digital tsunami will have a significant impact on Indians as consumers, it has transformational potential for Indians as citizens across the framework described above. We have seen early signs of this in the way government-citizen interactions are changing, whether in the form of online redressal platforms or railway ministry tweets. At a fundamental level, the digital wave has changed the country’s administration model from a pure ‘supplicant and provider’ system to one that resembles a true democracy.

Green shoots of new trends—currently at the surface—but with potential to explode

Pride in being Indian: A couple of decades ago, many Indians looked forward to relatives visiting from abroad, bearing gifts like foreign chocolates, perfumes and even shoes. How times have changed! Today around 60% of Indians are willing to pay extra for products made in India. The ‘Generation I’, whose formative years began after 1991, has never experienced an era of rationing. They are more confident about their country’s as well as their own capabilities.

There are different ways in which this national pride has started manifesting itself. Across categories, there is an increased curiosity and excitement around exploring local roots, as evidenced by growing consumer interest in natural products in personal care, local flavours in packaged food, and hand-woven fabrics in clothing. The bundi (Nehru jacket) is back in vogue—it has been listed among the top 10 all-time global political fashion statements by Time. Forest Essentials has grown to be a premium personal care brand, and is now going international after a stake purchase by Estée Lauder. FabIndia is potentially the single largest and most profitable retail apparel brand in the country.

Half the sky—gaining its rightful share: Sakshi Malik and P.V. Sindhu and their performance at the Rio Olympics is the best exemplar of the changing role of women in India. Women in India, across urban and rural areas, are exercising greater influence. Several forces are driving this shift—changing family structure, electoral reservation for panchayats, improved healthcare, and greater media reach and focus. We believe the most important factor is a change in women’s educational levels, which has changed dramatically. The enrolment rate for girls in secondary education has increased from 45.3% to 73.7% between 2005 and 2014 and is now higher than the 73.5% for boys. Even in higher education, girls have bridged the gender gap, with the enrolment level now at 19.8%, as against 22.3% for boys. Traditionally, the school dropout rate (for Classes I to X) used to be much higher for girls, but now it is lower than that for boys. The academic performance of girls has anyway always been better than that of boys.

Apart from greater literacy levels, this trend will have a much wider impact, ranging from changed workforce demographics to greater economic independence for women and other social changes. This is not going to be a sudden change, but more like a steady, tectonic shift.

The (almost) I, me, myself generation: While the nuclear family may seem to be the new normal, the future could see a further shift in how one thinks about family. We believe that India could see a second wave of transformation—from nuclear households to singles. There has been a steady increase in the number of people in the workforce who are still single. The average age of getting married went up from 22.6 to 28 for boys and 18.3 to 22.2 for girls between 2001 and 2011. The number of single women above 20 has increased by 40% over the same period. While this is largely a metropolitan phenomena so far, it has started percolating to Tier-II cities as well.

This change has implications not only for household sizes, demographics and the economics of income and expenses, but also for the very definition of family. Anecdotal evidence and parallels from other countries indicate that these singles, who are at one level, more individualistic, also think of communities (physical and virtual) and causes (social or political) as proxies for families.

A new reality—reinvent or fall behind

That India is poised to become the third largest consuming economy is clear. It is understanding the shape of this growth that will be crucial. As we described earlier, while some elements of the past will continue, there are big shifts that cannot be ignored. These raise fundamental questions that organizations need to address.

• Cater to different price tier segments: For the first time for most Indian categories, there would be scale markets across the price tier. How should organizations think of their business models/organizations to cater to these opportunities ?

• Address the changing societal changes: There are many societal/sociological changes happening in India—the changing role of women, increased individualism, differing role of family, national pride, etc. It is clear that these need to be addressed beyond just changing the image or punchline in the advertisement. How should organizations capitalize on these changes?

• Rethink notion of market and competition: The digital world has created a paradigm where the conventional view of market access and traditional competition is being truly disrupted by differing offers and new players. How should organizations think about market/segment/competition definition?

• Rebalance of the power equation: The nature of relationship between the consumer and the company, the state and the citizen is changing. Greater transparency, reduced information asymmetry and increased voice of the individual (magnified via the digital-social medium) has resulted in a situation where the balance of power is tipping away from the large organization. How should companies and governments engage with the new consumer/citizen in a truly democratic context?

As we look ahead, one thing is clear—the New Indian is different. Who they are, what they believe, why they choose, where they shop and how they buy. Companies and governments alike will need to fundamentally reinvent themselves and create new rules of engagement to truly win in this new reality.

Abheek Singhi is senior partner and director, consumer and retail practice head—Asia Pacific, the Boston Consulting Group. Nimisha Jain is partner and director, the Boston Consulting Group.

Twenty-five years after liberalization, and 20 years after it entered India, The Boston Consulting Group collaborates with Mint on a series of articles on what lies ahead for the country over the next 20 years.

Motion should not be confused with progress.

Though India has changed a lot from 1990's in terms of real progress it is still severely lacking behind. Most of the changes that have taken place is due to more money in the system. This gives rise to mirage that we are getting better off , but it is not. Our gains on political structure, bureaucracy , innovation,corruption, social norms...etc are still far behind that of modern system. Our capacity to solve issues or replicate success is still a big question mark.

Our leadership discipline or political strength to solve crippling issues like poverty or sanitation is still lacking. We might just be another modern democratic saudi arabia which we refuse to acknowledge.

 

[indo]

Our Infrastructure is severely lacking. Our cities are shit compared to even North Korea.

 

[Śakra]

thats why its very important on government part to carry rural india along with urban. all we need is a good infrastructure i.e education electricity roads internet and u will see these news coming even from rural sections of india

Rural should be developed before urban or else rural people will flood the cities.

 

[raj76]

Rural should be developed before urban or else rural people will flood the cities.

try telling that to ppl opposing land bill and labour bill without land no development is possible

 

[Nilgiri]

Rural should be developed before urban or else rural people will flood the cities.

Tier II, Tier III cities (and Tier I satellites) rather need to be developed to handle bulk of this rural migration. The cities need to be job creation centres for masses of population. Rural areas simply cannot provide the number of high quality jobs that cities can, because cities simply have much greater efficiency in things like transport, logistics, service provision, healthcare, education etc etc. Think of a quality hospital or good school, per dollar of investment, you will gain much greater assured throughput in a city compared to a rural area because of the respective population densities....thus it pays itself off quicker and adds its net social benefit much quicker too as a result. In fact this must be the formulation for rural areas too (get them to agglomerate and coalesce into hub/spoke models for better targetting of this costly infra).

However turning that raw efficiency of cities into sheer top class quality will take time and competent leadership and dynamic private and banking sector. It has just commenced in a big way (compared to before) now and some are more ahead than others, it will have to continue for decades....and the successes replicated and mistakes learned from.

The spillover from the margins created by the cities is the only sustainable way to then improve the rural areas as they deplete population wise. This has been the track record of every country that has urbanised....and is visible in quite a lot of the more developed states in India too. When this reaches the ganges valley area is when India will finally be taking off in a big way.

No country can get rich and develop sustainably while forcibly keeping its people rural (or creating subsidies for that). The frontier is always cities for development, while keeping the bare minimum of people watching over the larger landmass.

 

[Joe Shearer]

http://www.livemint.com/Politics/HY9TzjQzljCZNRHb2ejC2H/The-rise-of-Indias-neo-middle-class.html

The rise of India’s neo middle class

The story of millions of Indians whose lives have improved from a generation ago—in areas like income and education—and who continue to aspire for a better standard of living

The consumption by Indians has increased more than threefold in the past 10 years and is poised for similar growth in the next decade—leading to a tenfold increase in 20 years—a feat at this scale that has happened very few times in human history. Photo: Pradeep Gaur/Mint

Kavita is a 35-year-old primary school teacher living in Nagpur. Her husband, Prakash, is an accountant working with a trading company. Together they earn about Rs90,000 per month. Their daughter Roshni, 8, attends an English-medium, ICSE (Indian Certificate of Secondary Education) school. They are all busy on weekdays, but go out for lunch, movies or shopping on Sundays—Roshni calls it their ‘funday’. The Rs90,000 income may not seem a lot, but it is a big jump for Kavita, whose parents belonged to the ‘lower middle class’. Kavita grew up in a joint family in Ramtek, a small town near Nagpur, Maharashtra. Her father was a clerk with a public sector bank, while her mother was a housewife. Kavita’s mother never went beyond primary school herself, but she made sure her daughter completed her graduation. She had to fight with the elders in the family for Kavita to do that. Roshni’s dream is to study at a premier medical school and become a doctor. Kavita is already saving up so that she can make her daughter’s dream a reality. This is not just Kavita’s story. This is the story of millions of Indians whose lives have improved from a generation ago—with respect to areas like income and education—and who continue to aspire to a better standard of living.

Most of the narrative on the Indian consumer focuses on how the Rs83 trillion consumption economy is poised to grow in double digits to become the third largest in the world in the next decade. No doubt, the numbers on the size of the consumer economy are mind-boggling: the consumption by Indians has increased more than threefold in the past 10 years and is poised for similar growth in the next decade—leading to a tenfold increase in 20 years—a feat at this scale that has happened very few times in human history.

We believe that the full discussion on this should not only look at the size of the opportunity, but also understand the shape of this opportunity and the underlying consumer trends.

The shape of the consumption function has changed and will continue to evolve in the coming decades. Some of these are secular trends from the past, increasing at a steady pace—and shall become noticeably significant in the next decade.

Rise of the ‘affluent middle class’: Historically, and even in 2015, the largest set of Indian consumers has been those belonging to the ‘next billion’ income segment, accounting for 45% of the population and 39% of total spends. The middle class—which was the promise for many companies since the mid-1990s—has been growing but has never been the largest segment. But by 2025, the ‘affluent’ consumer segment will become the largest, accounting for about 40% of all Indian consumption, up from about 26% in 2015). This ‘affluent’ segment resembles the global middle-class consumer, and would herald the rise of the middle class in its most literal sense for the first time.

Shift in spending from basics to more: Roti, kapda and makaan have historically represented the largest expenditure for Indians. Over the past few years, however, there have been two notable changes in consumer spending patterns. The first is a rise in the total amount spent on education, leisure and telecommunications, driven by both greater demand, as well a change on the supply side. The second is the shift towards better, higher-priced sub-segments in the same historical categories ranging from food to consumer durables.

Continuing rise of the urban segment: India’s rate of urbanization has been very different from most other countries—it is not concentrated in a few cities, like in Indonesia or Thailand; not as fast as in China; and it is not as dispersed as in the US. It has been uniquely Indian. We estimate that about 40% of India’s population will live in urban areas by 2025, accounting for more than 60% of the total consumption. Interestingly, it will be the rise of the many cities #50 to 500 and not the megacities that will account for a large part of this growth.

Rise in the nuclear family set-up: The great Indian joint family may be the focus of Hindi cinema, but in reality the rise of the nuclear family has been a slow and steady phenomenon. It has been driven by multiple factors. Today, nearly 70% of Indian households have a nuclear construct, representing a 13% increase over the past two decades. While this has many social implications, from a pure consumption point of view, it presents a unique opportunity—for the same income level, nuclear families spend 20-30% higher per person than joint families.

The rise of the ‘digital Indian’ is going to be the third certainty after death and taxes

The trends mentioned above have been steadily increasing over the past 20 years, but there is one big discontinuity that is a more recent phenomena. Two decades earlier or even 10 years ago, no one could have imagined the impact of digital technologies on the average Indian. For starters, the numbers are mind-boggling. The total number of Indians with access to a cellphone is already close to a billion. The number of people in the country today with Internet access is already 300+ million—the size of the US population. Over the next decade, this number is expected to rise to 800+ million.

This dramatic increase is going to be accompanied by a change in the profile of the average user. The first 100 million ‘digital Indians’ were largely men, urban, educated, earning higher incomes, and typically, young. The 400 to 500 millionth ‘digital Indians’ are going to be the opposite—rural, mid-income, older, with more women included. This digital democratization will have a profound impact on how Indians see, select, study, spend, save, socialize and sell. Digital technologies will fundamentally change the nature of these interactions due to the following three reasons:

Two-way, real-time, superior information: Digital channels are not only providing consumers with access to more information, but also bringing about a change in the nature of retail interactions. The content available today is better—whether on Wikipedia or customized ‘webtainments’—with channels additionally facilitating near-real-time dialogue between retailers and consumers. In recent times, policymakers have also increasingly started tapping the Internet to directly connect with citizens—a case in point being the Telecom Regulatory Authority of India’s call for Net neutrality, or tweets solicited by the railway ministry.

Broader access to products and services: Geography is now truly history. E-commerce websites generate a surprisingly high share of their sales from Tier-II and Tier-III towns, due to the access they provide to consumers in these locations. The Internet is also enabling Indians to gain access to global education and healthcare. In Ajab, Gujarat, students take mathematics classes online from a teacher sitting hundreds of miles away, while villagers in Tamil Nadu now have remote access to professional advice on cataract problems.

Platform to enhance livelihood: Sufiyan Khatri, an artisan from Ajrakhpur in Kutch, has expanded his business manifold through his Facebook page. Milaap, an online crowd-funding platform, has raised Rs80 crore to fund several poor working Indians. Such digital platforms are thus empowering several entrepreneurs and artisans to enhance their selling, marketing and financing functions. The potential for these platforms lies much beyond the usual ‘buy and sell’ construct.

We believe that while the digital tsunami will have a significant impact on Indians as consumers, it has transformational potential for Indians as citizens across the framework described above. We have seen early signs of this in the way government-citizen interactions are changing, whether in the form of online redressal platforms or railway ministry tweets. At a fundamental level, the digital wave has changed the country’s administration model from a pure ‘supplicant and provider’ system to one that resembles a true democracy.

Green shoots of new trends—currently at the surface—but with potential to explode

Pride in being Indian: A couple of decades ago, many Indians looked forward to relatives visiting from abroad, bearing gifts like foreign chocolates, perfumes and even shoes. How times have changed! Today around 60% of Indians are willing to pay extra for products made in India. The ‘Generation I’, whose formative years began after 1991, has never experienced an era of rationing. They are more confident about their country’s as well as their own capabilities.

There are different ways in which this national pride has started manifesting itself. Across categories, there is an increased curiosity and excitement around exploring local roots, as evidenced by growing consumer interest in natural products in personal care, local flavours in packaged food, and hand-woven fabrics in clothing. The bundi (Nehru jacket) is back in vogue—it has been listed among the top 10 all-time global political fashion statements by Time. Forest Essentials has grown to be a premium personal care brand, and is now going international after a stake purchase by Estée Lauder. FabIndia is potentially the single largest and most profitable retail apparel brand in the country.

Half the sky—gaining its rightful share: Sakshi Malik and P.V. Sindhu and their performance at the Rio Olympics is the best exemplar of the changing role of women in India. Women in India, across urban and rural areas, are exercising greater influence. Several forces are driving this shift—changing family structure, electoral reservation for panchayats, improved healthcare, and greater media reach and focus. We believe the most important factor is a change in women’s educational levels, which has changed dramatically. The enrolment rate for girls in secondary education has increased from 45.3% to 73.7% between 2005 and 2014 and is now higher than the 73.5% for boys. Even in higher education, girls have bridged the gender gap, with the enrolment level now at 19.8%, as against 22.3% for boys. Traditionally, the school dropout rate (for Classes I to X) used to be much higher for girls, but now it is lower than that for boys. The academic performance of girls has anyway always been better than that of boys.

Apart from greater literacy levels, this trend will have a much wider impact, ranging from changed workforce demographics to greater economic independence for women and other social changes. This is not going to be a sudden change, but more like a steady, tectonic shift.

The (almost) I, me, myself generation: While the nuclear family may seem to be the new normal, the future could see a further shift in how one thinks about family. We believe that India could see a second wave of transformation—from nuclear households to singles. There has been a steady increase in the number of people in the workforce who are still single. The average age of getting married went up from 22.6 to 28 for boys and 18.3 to 22.2 for girls between 2001 and 2011. The number of single women above 20 has increased by 40% over the same period. While this is largely a metropolitan phenomena so far, it has started percolating to Tier-II cities as well.

This change has implications not only for household sizes, demographics and the economics of income and expenses, but also for the very definition of family. Anecdotal evidence and parallels from other countries indicate that these singles, who are at one level, more individualistic, also think of communities (physical and virtual) and causes (social or political) as proxies for families.

A new reality—reinvent or fall behind

That India is poised to become the third largest consuming economy is clear. It is understanding the shape of this growth that will be crucial. As we described earlier, while some elements of the past will continue, there are big shifts that cannot be ignored. These raise fundamental questions that organizations need to address.

• Cater to different price tier segments: For the first time for most Indian categories, there would be scale markets across the price tier. How should organizations think of their business models/organizations to cater to these opportunities ?

• Address the changing societal changes: There are many societal/sociological changes happening in India—the changing role of women, increased individualism, differing role of family, national pride, etc. It is clear that these need to be addressed beyond just changing the image or punchline in the advertisement. How should organizations capitalize on these changes?

• Rethink notion of market and competition: The digital world has created a paradigm where the conventional view of market access and traditional competition is being truly disrupted by differing offers and new players. How should organizations think about market/segment/competition definition?

• Rebalance of the power equation: The nature of relationship between the consumer and the company, the state and the citizen is changing. Greater transparency, reduced information asymmetry and increased voice of the individual (magnified via the digital-social medium) has resulted in a situation where the balance of power is tipping away from the large organization. How should companies and governments engage with the new consumer/citizen in a truly democratic context?

As we look ahead, one thing is clear—the New Indian is different. Who they are, what they believe, why they choose, where they shop and how they buy. Companies and governments alike will need to fundamentally reinvent themselves and create new rules of engagement to truly win in this new reality.

Abheek Singhi is senior partner and director, consumer and retail practice head—Asia Pacific, the Boston Consulting Group. Nimisha Jain is partner and director, the Boston Consulting Group.

Twenty-five years after liberalization, and 20 years after it entered India, The Boston Consulting Group collaborates with Mint on a series of articles on what lies ahead for the country over the next 20 years.

@PARIKRAMA @anant_s @Kaptaan @LA se Karachi @Bilal9 @AndrewJin @Dungeness
@proud_indian @Local_Legend @Ankit Kumar 002 @itachii @raj76 @WAJsal @Levina
@Vergennes @Taygibay @nair @SpArK @MilSpec @kaykay @Joe Shearer @Arsalan @ranjeet
@Robinhood Pandey @Blue Marlin @Mugwop @RAMPAGE @Mohammed Khaled

Brings out two of my favourite points:

1. The huge shift from country to town: Check out the urban vs. rural divide in 47 and its current state. 20% of India's population has shifted from the village, or the small town, or the medium size town to the city. They have carried a lot with them. The chaotic, unplanned village lives on in their habits: traffic indiscipline, less than scrupulous adherence to public hygiene, inability to form a queue, an unwillingness to live with the system's processes and a ceaseless attempt to 'beat' it - I could go on. These are not good or bad; these are reality.
2. The driver is professional employment. The emphasis is on engineering, on medicine, on accountancy, and we no longer educate our tertiary education segment: we train them. The loss is of the humanities, and the loss is made up on the Internet. And that explains the bhakt.

One false note in that write-up was the daughter studying ICSE, not the CBSE. The ICSE, the Bac and such essentially international diplomas have a broader, more humanistic thrust than the competition oriented CBSE.
This leads us to our third conclusion: much of our political status today can be explained by these twin pdhenomena

 

[MagicMarker]

thats why its very important on government part to carry rural india along with urban. all we need is a good infrastructure i.e education electricity roads internet and u will see these news coming even from rural sections of india

That is a myth. The governments job is Governance, not play favourites.

Urbanisation is the only way higher HDI and complex economic activities can be developed. So rather than 'carry' rural India like an unwanted burden, the Govt. needs to improve urbanisation to ensure list mile delivery of utility services to larger percentage of the population.

Rather than focus on roads or electricity which are easier to develop and hence easier to claim credit for, the govt. needs to focus on water management an creation of new water ways and water assets. Because without water, there is no urbanisation.

80% of India faces water scarcity. That is a total of I BILLION people.

This is an area that has been neglected for the past 1000 years and existing water resources have been abused to almost the point of no return.

The best part is most Indians will continue to chant roads, electricity, internet etc like you and forget to mention the most fundamental necessity of life itself. WATER.

This topic only comes up indirectly when pakistanis starts a new thread on 'Toilet' at regular interval.

Our Infrastructure is severely lacking. Our cities are shit compared to even North Korea.

Then why don't you move to North Korea to enjoy better cities and infrastructure ? That way all of us can be happy.

Rural should be developed before urban or else rural people will flood the cities.

Not if we can create new cities for them.

try telling that to ppl opposing land bill and labour bill without land no development is possible

Yes, people should willing give up their land and property so that you can live better. Makes total sense.

 

[raj76]

That is a myth. The governments job is Governance, not play favourites.

Urbanisation is the only way higher HDI and complex economic activities can be developed. So rather than 'carry' rural India like an unwanted burden, the Govt. needs to improve urbanisation to ensure list mile delivery of utility services to larger percentage of the population.

Rather than focus on roads or electricity which are easier to develop and hence easier to claim credit for, the govt. needs to focus on water management an creation of new water ways and water assets. Because without water, there is no urbanisation.

80% of India faces water scarcity. That is a total of I BILLION people.

This is an area that has been neglected for the past 1000 years and existing water resources have been abused to almost the point of no return.

The best part is most Indians will continue to chant roads, electricity, internet etc like you and forget to mention the most fundamental necessity of life itself. WATER.

This topic only comes up indirectly when pakistanis starts a new thread on 'Toilet' at regular interval.



Then why don't you move to North Korea to enjoy better cities and infrastructure ? That way all of us can be happy.



Not if we can create new cities for them.



Yes, people should willing give up their land and property so that you can live better. Makes total sense.

sir with all due respect u r a moron and that to leftist. unlike u i will keep it brief i said in my post not to leave behind rural india we need to take them along urban india (for all the nonsense u said). 2nd land bill doesnt mean government will make a house or club for me from the land acquired i meant that to devolop rural india either for water reserviour or dam or canal or road or industry for jobs they need land which under current law is very time consuming and tedious

 

[MagicMarker]

sir with all due respect u r a moron and that to leftist. unlike u i will keep it brief i said in my post not to leave behind rural india we need to take them along urban india (for all the nonsense u said). 2nd land bill doesnt mean government will make a house or club for me from the land acquired i meant that to devolop rural india either for water reserviour or dam or canal or road or industry for jobs they need land which under current law is very time consuming and tedious

When jokers on pdf call me a moron, I take it as an complement.

Govt. has no special duty towards rural India, and less towards urban India. In fact, most of the revenue in India comes from urban India, yet it has to suffer the worst governance since the resource are drained to fund rural India.

Mumbai has the highest number of billionaires and millionaires among all cities in India. It is also one of the world's top ten centres of commerce in terms of global financial flow.

Mumbai generates 6.16% of India's GDP and accounting for 25% of industrial output, 70% of maritime trade in India (Mumbai Port Trust and JNPT), and 70% of capital transactions to India's economy.

Mumbai provides 33% of income tax collections, 60% of customs duty collections, 20% of central excise tax collections, 40% of India's foreign trade and INR 4000 crore (US$630 million) in corporate taxes. Mumbai handles 55–60% of the country's total containerised cargo.

And do you know what's the Reward it gets ? 50% of Mumbai lives in slums and GoI makes no effort to improve its condition. Train travel is the worst in India and daily commute is hell.

But when it came to implementing Metro, Delhi was the first place it was implemented, not Mumbai. lol.


Despite your ignorant rant, the realty is that Urban centres which are the real drivers of growth is sucked dry and the money is pumped into the more inefficient rural sectors to subsidies farmer loans which are waived off as election gimmicks and vote bank politics. This is because the true Morons continue to chant what you rant.


Finally No one has the god given right to take away anyone's land under the guise of 'development'. If you want to develop something, give the land owner enough incentive to be part of that development. Not take away his land by force of law citing 'for the welfare of majority we condemn to to misery'.

 

[egodoc222]

With growing middle class....there will be mass migration of rural population to the urban areas....it will be a huge problem for the govt. To keep up with the infrastructural needs....new smart cities is the way forward...to prevent further burden on already jam packed metros

 

[raj76]

When jokers on pdf call me a moron, I take it as an complement.

Govt. has no special duty towards rural India, and less towards urban India. In fact, most of the revenue in India comes from urban India, yet it has to suffer the worst governance since the resource are drained to fund rural India.

Mumbai has the highest number of billionaires and millionaires among all cities in India. It is also one of the world's top ten centres of commerce in terms of global financial flow.

Mumbai generates 6.16% of India's GDP and accounting for 25% of industrial output, 70% of maritime trade in India (Mumbai Port Trust and JNPT), and 70% of capital transactions to India's economy.

Mumbai provides 33% of income tax collections, 60% of customs duty collections, 20% of central excise tax collections, 40% of India's foreign trade and INR 4000 crore (US$630 million) in corporate taxes. Mumbai handles 55–60% of the country's total containerised cargo.

And do you know what's the Reward it gets ? 50% of Mumbai lives in slums and GoI makes no effort to improve its condition. Train travel is the worst in India and daily commute is hell.

But when it came to implementing Metro, Delhi was the first place it was implemented, not Mumbai. lol.


Despite your ignorant rant, the realty is that Urban centres which are the real drivers of growth is sucked dry and the money is pumped into the more inefficient rural sectors to subsidies farmer loans which are waived off as election gimmicks and vote bank politics. This is because the true Morons continue to chant what you rant.


Finally No one has the god given right to take away anyone's land under the guise of 'development'. If you want to develop something, give the land owner enough incentive to be part of that development. Not take away his land by force of law citing 'for the welfare of majority we condemn to to misery'.

lol u joined yesterday and look at u r words "When jokers on pdf call me a moron, I take it as an complement." u r a moron opps there goes another compliment . and on a serious note its a fact if u wont uplift the society as a whole there will be alot of problems and who said land should be acquired without compensation government was offering 4 times the mrp and alot of other benefits. but some clauses in current law are very time consuming and tedious

 

[Nilgiri]

Brings out two of my favourite points:

1. The huge shift from country to town: Check out the urban vs. rural divide in 47 and its current state. 20% of India's population has shifted from the village, or the small town, or the medium size town to the city. They have carried a lot with them. The chaotic, unplanned village lives on in their habits: traffic indiscipline, less than scrupulous adherence to public hygiene, inability to form a queue, an unwillingness to live with the system's processes and a ceaseless attempt to 'beat' it - I could go on. These are not good or bad; these are reality.
2. The driver is professional employment. The emphasis is on engineering, on medicine, on accountancy, and we no longer educate our tertiary education segment: we train them. The loss is of the humanities, and the loss is made up on the Internet. And that explains the bhakt.

One false note in that write-up was the daughter studying ICSE, not the CBSE. The ICSE, the Bac and such essentially international diplomas have a broader, more humanistic thrust than the competition oriented CBSE.
This leads us to our third conclusion: much of our political status today can be explained by these twin pdhenomena

You mean IGCSE? Thats what I did for my junior high in singapore. Senior high I did I.B. An excellent structure I have to say....enriching most if not all that go through it.

 

[banvanaxl]

When jokers on pdf call me a moron, I take it as an complement.

Govt. has no special duty towards rural India, and less towards urban India. In fact, most of the revenue in India comes from urban India, yet it has to suffer the worst governance since the resource are drained to fund rural India.

Mumbai has the highest number of billionaires and millionaires among all cities in India. It is also one of the world's top ten centres of commerce in terms of global financial flow.

Mumbai generates 6.16% of India's GDP and accounting for 25% of industrial output, 70% of maritime trade in India (Mumbai Port Trust and JNPT), and 70% of capital transactions to India's economy.

Mumbai provides 33% of income tax collections, 60% of customs duty collections, 20% of central excise tax collections, 40% of India's foreign trade and INR 4000 crore (US$630 million) in corporate taxes. Mumbai handles 55–60% of the country's total containerised cargo.

And do you know what's the Reward it gets ? 50% of Mumbai lives in slums and GoI makes no effort to improve its condition. Train travel is the worst in India and daily commute is hell.

But when it came to implementing Metro, Delhi was the first place it was implemented, not Mumbai. lol.


Despite your ignorant rant, the realty is that Urban centres which are the real drivers of growth is sucked dry and the money is pumped into the more inefficient rural sectors to subsidies farmer loans which are waived off as election gimmicks and vote bank politics. This is because the true Morons continue to chant what you rant.


Finally No one has the god given right to take away anyone's land under the guise of 'development'. If you want to develop something, give the land owner enough incentive to be part of that development. Not take away his land by force of law citing 'for the welfare of majority we condemn to to misery'.

Very interesting indeed.. So who are you really ?