India's consumption continues its growth story but will be driven by its urban mass, rather than the urban middle class that characterised the growth of the Chinese economy. This is the key take away from the just-released report on the Indian consumer by global financial major Goldman Sachs.
The 87-page report that looks at the Indian consumer in detail notes that there are eight cohorts or clusters driving domestic consumption. But along with the urban educated mass, including graduate students, who hold basic corporate, SME and government jobs, urban blue-collar and migrant workers will also push up consumption levels in the next 5-10 years in India.
"We believe most of the new generation of India's youth will first fall into urban mass, a cohort that is 129 million people today, earning $3,200 on average. The expansion of urban mass, both in size and income level, will be the key driver of India's consumption story," analysts Joshu Lu, Anita Yiu and Aditya Soman note in the report titled 'India Consumer Close-Up'.
Within the youth segment, the analysts say it is the 440 million millennials and 390 million GenZ individuals (that is, people born after 2000) who will shape the consumer story. "The sheer size of India's youth combined with improved education paves the way for sustained growth in purchasing power and makes India's consumer story one of the world's most compelling for the next 20 years. The nation's challenge is to create enough jobs to unleash the productivity of India's youth," the analysts said.
The report also makes reference to brand investing, that is, increased awareness and consumption of brands. But it says that the trade-up by the urban mass will only happen in the case of brands that offer the most incremental value and quality. "They may not increasingly jump for aspirational brands," the analysts note.
For instance, when buying a car, the report says, the emphasis for the urban mass will be on a brand's fuel efficiency. Vanity will play no role in purchase decisions.
Categories that are best positioned to take advantage of this consumption boom include packaged snacks, baby products, premium personal care, scooters, SUVs and jewellery. Interestingly, the report also says that eating out will grow, outpacing the above-mentioned categories in terms of rate of growth.
The report also adds that India will leapfrog the most when it comes to mobile connectivity and ecommerce, but luxury goods and premium products will see limited growth.
"Culturally, India's affluent consumers tend to shy away from ostentatious display of wealth. One area where Indians do splurge is on weddings. The number of weddings and household formations will increase over the next five years," the report says.
Improved mobile connectivity will challenge the domination of television as a primary source of household entertainment over time, creating a bigger profit pool for content providers and mobile gaming, the report adds.