India
has been termed as one of the leading growth engines by many an economist.
Rightly so, over the last decade India has witnessed strong economic growth.
Fast growing economies attract business and capital seeking higher returns. An unexpected benefit of this growth has been
economic research done on the country. The spotlight has brought a whole host
of economists, financial analysts, business leaders and politicians
writing/talking about India. I find this very fascinating as it is always
interesting to read about different view. You can always compare and contrast
views between Indian authors and foreigners, between the optimists and
pessimists, between the story tellers and the number crunching analyst.
A
lot of these economic publications and analysts talk about low penetration of
products thus implying even a slight increase in penetration would lead to
explosive growth in the sector. Some of the charts below are rather
interesting.
Let’s
revisit the basic tenets of division. If the denominator is larger than the
numerator, the resultant number is less than one (tiny is an accurate word to
describe it in the context of India’s population being the denominator).
As
the graphs above prove, on every parameter involving population, India will
always have a low per capita number. And the reason is purely because of the
large denominator effect.
To
look at this number and then say that India has a large way to catch up with
other countries, thus concluding that demand for the underlying product /
service is bound to grow exponential is fool hardy. Yes, demand for products
and services will rise as consumption and demand rises due to the growth in the
economy. But the rate of growth for each product will follow a hierarchy of
needs of the consumer.
To
examine the potential for growth for each of these products we need to
understand the income and expenditure pattern of Indians. The table below provides
an indicative spending habit of an employed individual in an Indian metro city
Breakup
of Expenses:|
Total
Income
|
100
|
|
Savings
|
30
|
|
Rent
(Metro)
|
25
|
|
Food
and Living expenses
|
30
|
|
Miscellaneous
|
5
|
|
Free Income
|
10
|
I
have started with Savings first, because that’s the first thing an Indian
thinks of. Over the past decade the savings rate has been between 30-40%. Save
for a rainy day, is the clear mantra.
I
have broadly tried to account for other elements of cost of living, resulting
in a free income of around 10%. I tend to believe, that any reduction in other
heads, usual creeps into savings.
Let’s
assume the above percentages are accurate, we are now talking of about a 10%
figure. What this essentially means, is that all these products which do not
fall under the necessary requirements of an individual are competing for a
share of this 10% of the individual’s income.
Trust
me there are a huge number of products competing for a share of that wallet. If
an ice cream manufacturer is under the impression that he is competing with
other ice cream manufacturer or even broadens his ‘competition’ horizon to desserts
as a segment, he is mistaken. The positive though is that there is still a large
denominator.
P.S:
Just because you can use excel, doesn’t mean you pass of numbers as analysis
