FUTURE OF CONSUMPTION IN INDIA

India is on the cusp of a tremendous opportunity for both economic progress and improvement in the general well-being of its citizens. India is currently the world’s sixth largest economy and one of the fastest-growing large countries, with an annual gross domestic product (GDP) growth rate of 7.5%, a momentum that is expected to sustain over the next decade. Domestic consumption, which powers 60% of the GDP today, is expected to grow into a $6 trillion opportunity by 2030. This consumption growth will be supported by a 1.4 billion strong population that is younger than that of any other major economy.

Source : Value-Multicaps

The vision for the future of consumption in India is anchored in the growth of the upper middle income and high-income segments, which will grow from being one in four households today to one in two households by 2030. At the same time, India will also lift nearly 25 million households out of poverty, to reduce the share of households below the poverty line to 5%, down from 15% today. Thus, India represents a relatively broad-based pattern of growth and benefit sharing, in contrast to the global scenario of increasing inequality wherein the richest 10% of the population is capturing an increasing share of national incomes and, consequently, wealth.

THE MACRO CONTEXT OF INDIA

India is the largest democracy in the world and the second most populous nation, with nearly1.35 a billion people, and also the sixth largest economy with all the factors into consideration it has some structural strengths that have enabled robust economic growth and some of the factors are as follows:

1. Domestic Consumption driven economy : Nearly 60% of India’s GDP is driven by domestic private consumption, as compared to 40% in China. Therefore Economy is protected against great external shocks and cycles of low and high public investments.
2. Healthy Savings: India’s households have maintained a high savings share of their income at 22%. This may have been a necessity due to lack of access to consumption or lack of social security nets. As access to goods and essential services (e.g. healthcare) improves, these savings will continue to provide a buffer for further consumption.

DRIVERS OF FUTURE CONSUMPTION IN INDIA

Source : ISPF

The future presents an opportunity for India to tackle challenges on employment, skills, health, and sustainable living at a national level, and undertake efforts to further reduce economic and human development disparity at a regional level. There is also an opportunity to strengthen the ecosystem for innovation and entrepreneurship, to allow India to reap the full potential of a young and inherently entrepreneurial population that now has access to knowledge and technology that can drive innovations to solve real needs and challenges. Business, government, and policy leaders have a truly unique opportunity to become custodians of India’s long-term economic prosperity and inclusive society.

VISION FOR CONSUMPTION IN INDIA BY 2030

India has been evolving as one of the world’s most dynamic consumption environments and is expected to maintain steady economic growth. Indian consumers in 2030 will be richer and as young and as diverse as they are today. At the same time, innovation and technological development will elevate consumption models to the next level. Enabled by the five major drivers, seven key predictions will define the future of consumption in India in 2030. These key predictions have significant business and societal implications for India’s future and are elaborated below

1. Rising incomes and the expansion of the middle class and high-income segments will reshape future consumption.
2. Many Indians will drive consumption growth and the urban-rural divide will diminish significantly.
3. Liberalization’s children — India’s Millennials and Generation Z will become a major consumption pool and spend more than their predecessors.
4. Indian peculiarities will shape future opportunities for indigenous offerings, e-commerce, value-for-money brands, and digital entertainment.
5. Many consumer archetypes will persist as age, education, occupation and connectedness begin to strongly influence preferences within each income segment.
6. Connected India, with more than 1 billion internet users, will have significantly more informed consumers who will demand greater transparency from brands.
7. New business models enabled by technology, will monetize and organize latent consumption opportunities.

Source : World Economic Forum

Source : World Economic Forum

THE FIRM OF THE FUTURE IN INDIA

The next decade in India will be a great consumer story, both in scale and in the diversity of consumer demands. The future is an opportunity and a call to action for global and Indian businesses, established and emerging businesses. Incumbents who perfect the trifecta of scale, agility, and purpose will thrive. Customer-centric innovative brands can leverage digital media and online platforms to reach out to India’s billion-plus savvy and connected consumers. This section discusses the key capabilities needed for the successful operations of a company in India. To capitalize on the opportunities presented in the abovementioned seven “predictions”, companies that wish to thrive in India will need to foster demand-side innovation while also building effective supply-side competencies to serve future demand. Firms of the future in India will need to build six critical capabilities

1. Unlock consumption through inclusion — voice, video, vernacular, and “mobile-first” opportunities- India’s new connected consumers will increasingly be vernacular-speaking, rural, and older than before. These consumers may be less familiar and less comfortable with digital shopping experiences and app-based consumption than their English-speaking, urban and smartphone-native young counterparts today. Innovative ways will be necessary to build a trustful relationship with these consumers as they begin accessing information and engaging with businesses through digital platforms. Voice-assisted purchase pathways, simpler interfaces with intuitive imagery and symbols, communication through video content, and customer service through vernacular chatbots can accelerate the inclusion of diverse new consumers.
2. Innovate for India — Unique or highly localized preferences: From beverages rooted in the nostalgic Indian flavors of homemade drinks to one-rupee transactions on digital wallets, India’s product and service landscape has been, and will, remain rooted in the uniquely Indian preferences of its diverse consumers. Established global firms will need to incorporate a deep understanding of these preferences to “build for India”, as opposed to replicating or remodeling offerings of the West.
3. Build transparent, uniform customer experiences — Transparent pricing, product information, and benchmarked product quality will become a must-have capability to serve informed consumers. With decreasing asymmetry of information between customers and companies, high levels of integrity in all communication will become a basic expectation. Digital platforms will enable customers to express their displeasure in real-time and at scale, irrespective of geography. Therefore, firms will need to be highly responsive and empathetic to customer feedback and address the challenge of conforming to a uniform corporate standard at regional and local levels.
4. Reimagine the point of sale enabled by flexible yet scalable supply chains — Omni-channel shopping will take on multiple roles. As many first-time consumers across geographically dispersed areas begin their shopping journeys, an asset-light and distributed point of sale footprint, with assisted shopping and access to an online catalog will become important. This will enable companies to test latent demand in new markets before choosing to establish an offline footprint. The transformed point of sale must be supported by simplifying and delaying traditional supply chains. Legacy supply chains with multiple intermediaries must be re-evaluated for efficacy and cost-efficiency. This will become increasingly important in order to compete with asset-light start-ups that leverage the modular e-commerce supply chain to reach as many (or as few customers) as needed. Frequent product launches and innovations, in an evolving consumer market, will further necessitate strict reduction of obsolescence and inventory lock-up.
5. Embrace partnerships to adapt to value migration — Distribution channels of digital consumption platforms will increasingly have superior information about the source and nature of consumer demands. Be it an online retailer or an online video-streaming platform, the distribution channels of the future will be equipped to craft a “just right” product or service based on an accurate understanding of features, functionality, and price desired by the consumer. Indian customers have lower brand loyalty than their Western counterparts and are willing to shift to private label equivalents that provide adequate value. Companies with no ownership, control, or meaningful partnerships with these distribution channels may find their brands competing with (or marginalized by) private labels. Building win-win partnerships with these channels will become a critical capability for established and emerging businesses alike. Overall, partnerships will be crucial to capturing consumption growth opportunities, as can be learned from the growth of strong consumption ecosystems in China. Players like Alibaba and Tencent have formed deep partnerships across the retail value chain, through meaningful relations with offline and omnichannel retailers, logistics providers, and payments providers.
6. Ensure agile and entrepreneurial decision-making — Large businesses must adopt the agile decision-making and frontline ownership that characterizes India’s successful entrepreneurs, to respond to rapidly growing consumer demand that retains uniquely Indian Characteristics The key engine driving all business capabilities will be a skilled workforce. Hence, to realize the vision for building a firm of the future, Indian and global businesses will need to invest in recruiting, continuously skilling, and retaining talent from multiple sources — be it in-house talent, third-party teams, or gig-economy workers. The availability of skilled workers is a key imperative for realizing the positive future of consumption envisioned in this report. This is also one of the most critical concerns shared by key stakeholders in India.

CONCLUSION

India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanization; favorable demographics; technology and innovation; and evolving consumer attitudes. As these drivers move India forward, many stakeholders have the potential to shape the country’s positive consumption future. Through shared accountability, both the private and public sectors can ensure an inclusive and responsible future of consumption in India. There are opportunities for businesses to serve India’s 1 billion-plus consumers through innovative and inclusive business models, supported in parallel by a favorable policy environment by the government. Key actors, such as academia and civic institutions, also have a huge role to play in ensuring the well-being of India’s citizens and driving towards inclusive growth. Working together, these stakeholders can help build a future that benefits consumers and society. The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing India today — skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected, and thriving nation, and establish India as a model for fast-growing consumer markets of the world.

Author : Jayesh Kala

Illustration By : Ekansh Hinger

References :

1. World Economic Forum
2. Study of Consumption in India 2018 — A consumer survey conducted across 5100 households and 30 towns across urban and rural India, led by Bain and People Research on India’s Consumer Economy (PRICE)
3. Bain & Company/World Economic Forum analysis
4. Oxford Economics, Euromonitor, PRICE Projections based on ICE 360o Surveys (2014, 2016, 2018)