1. As affluence rises, consumption in India set to hit $4 tn mark by 2025: BCG

As affluence rises, consumption in India set to hit $4 tn mark by 2025: BCG

In terms of spending, the two top consumer categories — elite and affluent — will become the largest combined segment by 2025, accounting for 40% of consumption compared with 27% in 2016.

Published: March 22, 2017 7:58 AM
Consumption of goods and services in India is set to reach trillion by 2025 as rising affluence drives changes in consumer behaviour and spending pattern. (Reuters)

Consumption of goods and services in India is set to reach $4 trillion by 2025 as rising affluence drives changes in consumer behaviour and spending pattern, according to a paper released on Wednesday by market research firm Boston Consulting Group’s (BCG) Center for Customer Insight (CCI), reports fe Bureau in New Delhi. In terms of spending, the two top consumer categories — elite and affluent — will become the largest combined segment by 2025, accounting for 40% of consumption compared with 27% in 2016.

Urban and affluent Indians are fuelling most of the growth, states the report. Moreover, by 2025, wealthy urbanites will be responsible for one-third of total consumption. The share of the next billion who have an annual gross salary in the range of $2,3000-7,7000 and strugglers with annual gross salary of less than $2,3000 will shrink from 49% in 2016 to 36% in 2025.

Also, in terms of consumption expenditures, emerging cities — those with a population of less than 1 million — will be the fastest growing. Fuelled by rising affluence, expenditure in these cities are rising by nearly 14% a year, while consumer spending in India’s biggest cities is increasing at about 12% a year.

“India’s consumer market is poised for fundamental change. As the consumer market continues to grow and evolve, companies will need to shed conventional wisdom, try multiple business models simultaneously, and be prepared for rapid change internally to adapt to changing consumer needs and behaviours,” said Nimisha Jain, a BCG partner and co-author of the report.

Interestingly, traditionally in the case of many consumer categories, increasing market penetration has been the biggest driver of sales growth. However, this too is set to change as frequency of purchase and spending per purchase too is increasing. There is a shift toward higher-quality, higher-price sub-segments within categories. As per the study, 30% Indian consumers are willing to spend more on products that they perceive are better when compared with products made in developed markets such as the US, Germany, and the UK. For example, in women’s apparel, elite and affluent consumers spend nine times and five times more, respectively, than a struggler. In the case of eating out, elite and affluent householders spend 35 times and 13 times more, respectively, than strugglers.

In addition, the internet is an increasingly pervasive factor in India’s commerce, and its influence will only expand. In the past three years, the number of online buyers have increased sevenfold to 80-90 million. Digitally influenced spending, which is currently about $45- 50 billion a year, is expected to increase more than 10-fold to $500-550 billion. E-commerce is expected to account for 30-35% of all retail sales by 2025.

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