Sold on Spending : India’s Fast-Growing Middle Class Has a Voracious Appetite for Goods
Katikanari Taher Mahi’s father used to make fun of him. His sister was studying at Duke University, his older brother had a good government job. And here was K.T., taking time out from college to peddle toothbrushes in the bazaar.
His father isn’t laughing now. Two months ago, K.T. Mahi splurged on a $72,000 Mercedes-Benz four-door sedan, his sixth car. He’s building a 10,000-square-foot home for himself, his wife and two young sons on a 26-acre plot.
Eleven years after his debut in business selling toothbrushes, Mahi, 31, has made it big--and dreams of making it bigger. A leading entrepreneur in this south Indian city where one of the world’s wealthiest men, the Nizam of Hyderabad, once reigned, Mahi plans to go into manufacturing fire extinguishers with an Australian partner and to start an engineering college. He’s searching for a foreign product he can market exclusively all over the country.
“The middle class has grown like anything in India,” the pleasant-mannered, mustachioed businessman with a slight paunch says happily. “It used to be going to a five-star hotel was a very big thing. Today, 80% of their business comes from middle-class families.”
A quarter of a century ago, “Abolish poverty” was the slogan nationwide in India. People with disposable income were more likely than not to spend it on a house or their children’s education.
Nowadays, the watchword for millions of Indians has become “Make money and spend it.” And never has the country’s middle class dreamed so grandly, bought so much and wanted so much more.
Exactly what constitutes this ambitious, dynamic segment of society is a topic of great debate. Economists at the New Delhi-based National Council of Applied Economic Research contend that India is too complex and multilayered to speak with any useful precision of a middle class, but they point to an army of 700 million consumers who earn at least $450 yearly per household and who can afford products such as toothbrushes and transistor radios.
Other market surveys put the middle class at anywhere between 100 million and 250 million people and define it as those civil servants, shopkeepers, employees of public and private enterprise and prosperous farmers who can afford durable goods such as electric fans, motor scooters and refrigerators.
“Middle-class purchasing power has exploded--it’s incredible,” said B.K. Sudhakar Reddy, Hyderabad bureau chief for the Economic Times, a national business daily. “And we are not talking about small numbers. Our middle class alone is as much as the entire population of Europe.”
So great is the pent-up demand and the potential for growth that India has been identified as one of 10 “big emerging markets” by the Clinton administration. Hundreds of U.S. and other foreign companies have done their own number crunching and moved to put their wares in Indian stores or to search for a local partner or linkup.
This month, Ford Escorts began rolling off an assembly line in Tamil Nadu. Locally stitched Arrow shirts are already on the backs of many Bombay executives. Indians now can start their day with a bowl of Kellogg’s Corn Flakes or quench their thirst with Stroh’s beer.
And other foreign companies are coming, tantalized by the mind-boggling purchasing power of the emerging middle class in the world’s second-most populous nation, after China.
*
U.S. companies have taken an aggressive lead, especially in plans to modernize the overtaxed electricity grid and telecommunications network. For the period 1991 through 1995, American firms accounted for more than a quarter of the officially approved $12.9 billion in proposed foreign investment, and they have continued to lead the pack this year.
“India is more and more on America’s map for investment,” said Jonathan Bensky, counselor for commercial affairs at the U.S. Embassy in New Delhi. “It’s a place American companies have decided they have to look at, at the very least. We tell them that if they want to be global players in the next decade, they are probably going to have to be present in India.”
For all that, getting something off the ground has proved difficult for many. Foreign investors have voiced frustration over delays and mixed signals. Only about a quarter of the ventures approved over the last five years have actually gotten underway. But starting this summer, the center-left coalition government of Prime Minister H.D. Deve Gowda, which took power June 1, quickly moved to eliminate a backlog of foreign investment projects waiting for the official green light. Approval was given to Coca-Cola to take a major equity stake in Indian bottling plants. Quaker Oats got permission to manufacture Gatorade and Warner Bros. to open a multiplex cinema.
According to some reports, delays and bureaucratic red tape had convinced Quaker and Warner that they should take their business elsewhere. But Gowda’s government has pledged to expand the number of economic sectors where foreign investment can get fast-track approval. A Foreign Investment Promotion Council to target specific companies and try to coax them into setting up shop in India has also been launched.
The growth potential, it would seem, is infinite. According to estimates by the Center for Economic and Social Studies in Hyderabad, only 5% of India’s households currently have TV sets. Just 2% have motor scooters, 1.5% have telephones and 0.5% have cars.
“The typical middle-class person in India is really not bothered by unclean water or lack of sanitation,” said F.D. Vakil, professor of political science at Hyderabad’s Osmania University. “He now wants a color TV, a pager.”
*
Down the income ladder, aspirations are more modest but are felt just as keenly. Surveys show a full 70% of the bicycles, radios and wristwatches sold in India are now snapped up in the poorer countryside, tangible proof that more Indians are living better than ever before.
Like many middle-income Indians, the family of Tej Bahadur Singh, a government official on the Andaman and Nicobar Islands in the Bay of Bengal, has been bitten by the consumer bug. In recent years, Singh and his wife, a schoolteacher, have purchased a television set and refrigerator on their combined monthly take-home pay of $340.
Food, though, is costly--a cauliflower brought in by boat costs six times as much as in Calcutta or Madras--so the Singhs have to rein in their ambitions.
A house they started in 1979 for themselves and their two daughters is still unfinished. The Singhs must also worry about putting aside enough money to pay for the weddings of their girls, 22 and 18. But they dream of having more.
“We’d like to buy a car, but we can’t afford it at the moment,” Apara Singh, the younger daughter, said. “We have to save for my sister’s marriage.”
The dawn of consumerism in India came in the 1980s, when the country’s socialist-style planning system and Puritanical, egalitarian tax policy made room for local assembly or production of consumer durables such as television sets and small private cars.
But it was the loosening of government economic controls beginning in 1991 that turned the trickle into a raging torrent. The market has been opened to imports to an unprecedented degree. More and more brands are competing for Indians’ loyalties. New privately owned television channels beam images of the good life--like a bottle of Hundred Pipers Scotch or a Panasonic wide-screen TV--into millions of homes.
Nowadays, thanks to the reforms, relatively flush Indians such as Karan Singh Sumeer of New Delhi can buy their Levi’s jeans and Reebok sneakers locally. For his crowd, said the 22-year-old Sikh businessman, the ‘90s have been the decade of “more choice and more brands.” And of more opportunity: Sumeer’s travel agency, opened four years ago, already grosses $130,000 annually.
“When I started,” Sumeer says, “I did not think that I would have done this much in so little time.” Thanks to his seven-day workweeks, he now has the money to eat out at night and unwind at discotheques, and he plans to buy a luxury car soon.
As the country heads for its 50th anniversary of independence next year, this consumer fever has become a frequent topic of heated debate.
A chorus of critics complains that traditional values like sobriety, thrift, spirituality and assistance to members of the extended family are crumbling.
“Sharing used to be part of our orientation, and people were taught to postpone pleasure for greater goals,” said Vasantha Patri, professor of psychology at Delhi University. “Nowadays, being corrupt and materialistic seems to be the fashion.”
As he dined on chicken at a downtown eatery in the Indian capital, Indermohan Singh Bedi, 26, whose fledgling garment business exported more than $250,000 in clothing last year, expressed puzzlement at such criticism.
“I think if you have it, why not show it--well, at least a little bit of it,” Bedi said.
Iswar Natarajan, chief economist at the National Council of Applied Economic Research, speaks less judgmental of a tectonic shift in “spending habits,” especially among younger Indians.
Today, “buying fancy clothing and going to posh restaurants is the ‘in’ thing,” Natarajan said. “The net result has been a fall in savings rates.”
Alas, for most middle-class Indians, the revolution in expectations must be offset by their inability to afford everything they want or have come to believe they need. Over the last five years, surveys show, purchasing power for most middle-income people, although much greater than before, has not kept pace with inflation, which this month topped 6%, the highest annualized rate in nine months.
Installment loans and a new institution, the credit card, may allow some of the cash-strapped to keep up with the Aggarwals or Krishnamurthys. But they can carry annual interest rates of 24% or more.
“Many families I know have destroyed their lives,” Vakil says. “One of my neighbors bought a GE Godrej refrigerator and is paying tremendous charges. An ordinary fridge just wouldn’t do.”
Whether India’s middle class will keep growing is uncertain, but projections by the National Council of Applied Economic Research are encouraging. Its economists have structured the population into a five-tier pyramid, with the destitute on the bottom and the very rich at the top.
During the next 10 years, the council’s economists predict, the number of “consumers” and “climbers,” the two categories immediately below the very wealthy, should balloon from 425 million to more than 800 million. The ranks of the destitute, meanwhile, should shrink dramatically from 210 million to 90 million.
*
“If trends of the past five years continue, India will be a richer and fairer country,” Natarajan said.
Parimi Venkatramaiah, director of Hyderabad’s Center for Economic and Social Studies, disagrees. Conditions set by India’s foreign lenders mean work forces in government and publicly owned factories should stagnate or shrink, he says. That leaves only the private sector, and Venkatramaiah believes growth in well-paid jobs there will be hamstrung by the increasing need of Indian companies to cut costs so they can compete globally.
Simultaneously, the gulf between the middle layers and the poor will widen, he predicts, and “these income inequalities will impose a ceiling on growth opportunities for foreign and Indian companies.”
Mahi, who has made his fortune by catering to the growing appetites of consumers, is among the optimists. When he was 20, he got his first job as a local franchisee for Ajay toothbrushes. These days, he is exclusive representative in Andhra Pradesh state, a sales territory two-thirds the size of California, for Johnson & Johnson, India’s Parle biscuit line, Ray-Ban sunglasses and the nation’s leading brand of packaged pan masala, a popular and addictive chew made of betel nuts, tobacco, quicklime and other flavorings.
In 1994, he built a $1.2-million printing plant so he could secure the local franchise for the Economic Times, and he recently launched his own newspaper, the Andhra Pradesh Times.
All businesses combined, Mahi has 300 employees, a gross annual revenue now approaching $26 million and personal income last year of about $500,000. For both India and himself, Mahi foresees a rosy future. He only has to look, he explains, at the thousands of men, the panwallahs, who sit at street corners and marketplaces, selling the sachets of pan masala that he supplies.
“Yes, the panwallah still lives in the same house as he used to, but now he uses a Jordan toothbrush, wears Ray-Ban sunglasses and smokes a good filter cigarette,” Mahi said. “All these panwallahs now have Hondas, Suzukis. I feel the common man has benefited from all the economic changes we have had and that the middle class is growing.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Growing Wealth
Middle-class purchasing power in the world’s second-most populous nation has exployed. Income categories in Indian households today and projected income distributions in 10 years.
Now:
Very rich: 0.7%
Consumers: 16.4%
Climbers: 30.0%
Aspirers: 30.0%
Destitute: 22.9%
*
In 10 years:
Very rich: 3.9%
Consumers: 31.2%
Climbers: 43.6%
Aspirers: 12.9%
Destitute: 8.4%
*
How the categories are defines
Very rich: $3,978 or more annually
Consumers: $1,421 to $3,977
Climbers: $626 to $1,420
Aspirers: $454 to $625
Destitute and the near destitute: $454 or less
MASS CONSUMPTION
A typical Indian middle-class budget:
Food: 46.0%
Housing/electricity: 12.6%
Clothing: 7.7%
Education: 7.5%
Transportation: 5.9%
Entertainment/vacation: 5.2%
Other: 15.1%
* Sources: India’s National Council of Applied Economic Research, India Today-MARG Poll.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
The Wish List
What the Indian middle class owns or intends to buy this year
House:
Own: 60%
Intend to buy: 14%
Scooter or motorcycle
Own: 35%
Intend to buy: 10%
Washing machine
Own: 13%
Intend to buy: 16%
Refrigator
Own: 46
Intend to buy: 15%
Car
Own: 5%
Intend to buy: 6%
VCR
Own: 10%
Intend to buy: 9%
* Source: India Today-MARC Poll
