The key driver of India’s consumption story in the next decade will be the Urban Masses – comprising the urban poor and educated blue collar workers – with a little help from the Indian propensity to hold big, fat weddings, said a Goldman Sachs report released on Wednesday.
This is quite different from how the growth story developed in neighbouring China, where the urban middle class propelled consumption.
The report titled, The Indian Consumer Close-Up, points out that India’s growth story hinges on an increase in consumption of quality goods across classes. The driving force will be the Urban Mass – a cohort of 129 million people – earning an average of Rs 2 lakh a year.
“We believe most of the new generation of India’s youth will first fall into urban mass… earning $3,200 on average," the report said. "The expansion of Urban Mass, both in size and income level, will be the key driver of India’s consumption story in the coming 5-10 years.”
The report added that India’s consumption patterns are unique in more ways than one. For instance, the report said that even though more Indians are buying luxury cars and expensive gadgets like iPhones, their spending ability is limited because of the uniquely Indian preference for “value-for-money”.
The report said: “Whereas Chinese consumers have aspired to show their wealth through conspicuous consumption, Indian consumers have traditionally avoided ostentatious displays, preferring a keen eye for value”.
This is where the Urban Mass cohort comes in. Owing to the potential rise in income and employment opportunities in the next few years, people in this segment will be the ones buying lifestyle products, packaged food and dairy, data packs and movie tickets.
The age of consumers will be critical too. India is among the youngest countries in the world with a large chunk of its population below 25 years of age. There are 440 million millennials, people born after 1980s, and another 390 million people from Generation Z, i.e. born after the year 2000.
This is why, the report says, that both the industry and the government need to focus on the people in their early 20s belonging to the lower middle class, and not the upper middle classes of society, which comprise barely 0.08% of the working population.
Even though the incomes of millennials could have big variations, their spending patterns are likely to centre around seven major categories highlighted in the report. They are: Eating better; looking better; better home; mobility and connectivity; having more fun, and well-being and luxury.
While luxury goods could see lukewarm sales due to spending capabilities of the Urban Mass cohort and the preference for value-for-money, one big exception is Indian weddings. The report said that as the population ages, the number of weddings could increase subsequently fuelling a demand for some luxury goods as well as for gold.