>GAME CHANGER: RUPEES: The India consumption story.

The Indian consumption market will grow two-and-a-half times by 2025E, to Rs110 tn from Rs43 tn in FY2010. More Indians will have a pocketful of money and a long shopping list, spending disproportionately on leisure, hotels, housing, household goods, healthcare and more, but less on bare necessities and staples, as a proportion of consumption. How do we know? We present KIE’s RUPEES Estimator, a predictive model that plots India’s consumption story. It classifies households into: (1) Real-rich, (2) Upper class, (3) Prospering, (4) Evolving, (5) Emerging and (6) Surviving. However, inclusive growth (through productive job
creation) is crucial to the stability of the process.


RUPEES Estimator telescopes dramatic change
Prosperity changes spend trends. With increased prosperity, societies spend less on staples and increase discretionary spends as a percentage of their expenditure. We fed data on historical spends in India and in countries with different purchasing power parity-adjusted per capita income, into the RUPEES Estimator, to predict how Indian consumers will spend. The RUPEES Estimator can be a helpful tool in understanding the market opportunity. If you want to make your own assumptions, just ask for our model!


Buying power by the billion: Bucks for luxe
By 2025E the Indian consumption market will be two-and-a-half times bigger than it is today. The top three classes will account for about half the consumption, from less than a third currently and the Surviving class will emerge from a base of deprivation. Over our forecast period, we model consumption at 59-62% of GDP and assume long-term real growth of 7% on a population increase of 1% a year. To finance this growth, we expect India to continue its high savings rate.


Growing gains
Looking at the individual categories of spending, we identify trends that will bring meaningful
change in the category of consumers. The over-arching themes are (1) money spent per capita on a category will increase dramatically, requiring companies to innovate on providing better,
improved or more premium products, and (2) new sub-categories of consumption will open up
within each of these categories as an amalgam of consumer classes will require differentiated
products.


Rural India morphs into mushroom towns
Evolving India will also mean the emergence of mushroom towns. The urban market will account for more than 55% of the consumption market by FY2025E from less than half today and urban households will account for about 40% of the total number of households, up from 30% currently. The push towards urbanization will not come from an overspill into metros, but
development of tier-II and tier-III cities. The emergence of growth hubs can offer stability to the
growth story.


GameChangers: How to nurture the metamorphosis
A richer, more prosperous India will throw up scores of opportunities for companies and entrepreneurs, according to RUPEES Estimator. However, two assumptions are crucial: (1) economic growth must continue (on a long-term basis) at 7% a year and (2) the growth must
be reasonably inclusive in nature. That means every class must benefit from growth. Therefore, it is crucial that the economy offers productive job opportunities. If it does not, the growth process may be neither stable nor inclusive.


RISH TRADER