Indians need basic goods and services, not luxuries

India incomes Jul12.pngThe Indian economy is one of the most misunderstood in the world. It holds great opportunities, because unlike China it still has a relatively young population. But it is also desperately poor. Thus the opportunities are around providing very basic needs, not for western-style goods.

The above ‘Business Standard’ chart based on National Sample Survey reports, highlights the key issues. It shows how incomes have improved for both rural and urban dwellers between 2004-5 and 2009-10. But it also shows how low these incomes are in absolute terms:

• 90% of urban dwellers spent <3200 rupees/month in 2009-10 (red line)
• In 2004-5, the comparable figure was 2800 rupees (grey)

• 90% of rural dwellers spent <1500 rupees/month in 2009-10 (blue)
• In 2004-5, the comparable figure was 1400 rupees (dark grey)

1000 Indian rupees are worth ~$18. So 90% of urban dwellers spent less than $700/year in 2009-10. And 90% of rural dwellers spent less than $325/year. And as the chart shows (x-axis) 50% of both urban and rural dwellers spent less than half these amounts each year.

It is sheer wishful thinking to imagine that these people can be described as 'middle class' in any sense of the word. It also blinds companies to the real opportunity that these people represent.

The data shows that 50% of India's population increased their spending power by ~$2/month between 2004-5 and 2009-10. This was an ~8% increase for urban dwellers, and a ~15% increase for those in rural areas.

This was real progress for India's 1.2bn population. Designing products to meet the needs of these ordinary Indians is the real opportunity for the future.

Update, 31 July. Just as this post was published, much of India suffered a major electricity blackout. A second blackout has occured today, cutting power from half of India’s 1.2bn population. The area affected stretches from Kolkata to New Delhi. The news highlights yet again how India’s need is for the provision of basic services, not luxury goods.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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