Wishful thinking can have a very bad impact on company and investor profits.
Look, for example, at the problems caused by the belief that China’s population had suddenly become middle class, based on average incomes of $2-$20/day. Now it seems the same process of mythologising is underway with India, with ratings agency S&P suggesting yesterday that:
“India has overtaken China as the Asia-Pacific region’s growth leader, at least for now…the region’s new growth driver will now be consumption by the rising middle class”
It would be nice if it were true, but reality is somewhat different – as India’s response to next month’s climate change conference in Paris confirms. As the BBC has reported, it is refusing to commit to any cap on CO2 emissions:
“India’s energy policy is based on burning more coal. It plans to open a major new coal-mine every month until 2020, doubling coal output to 1bn tonnes/year….and it isn’t hard to understand why. India has more impoverished people than any other country – a quarter of a billion Indians, a fifth of the population survive on around $3/day. And understandably the Indian government says the country must be allowed to grow to lift them out of poverty.”
The photo from Business Insider confirms the conditions in which these families work. And whilst analysts continue to talk of 100m – 300m Indians being middle class, the reality is that half of the population does not have access to a toilet. Another telling statistic is that 81% of India’s auto sales are motor bikes (16m), with only 13% being cars.
But this doesn’t mean there are no opportunities for growth, if companies ignore the hype and do their homework. As the chart from the Pew Institute confirms, India’s key demographic is the 75% of people with incomes of $2-$10/day, with the number of those living on <$2/day having fallen from 35% in 2001 to 20% by 2011.
The key, however, as The Economist notes, is to focus on real needs. It argues, for example, that:
“The quickest way to improve energy access is to supply power away from the grid through distributed energy – things like solar panels on houses or a micro-grid for a particular village linked, say, to a wind turbine”
Hindustan Unilever’s Project Shakti programme provides another example of the way forward, as we discuss in the 5 Critical Questions Study. After 15 years, it now involves 150k villages across 15 Indian states, and has trained 70k women from low-income households to become entrepreneurs.
Of course, it would be wonderful if China’s population had indeed become middle class by Western standards, and India was about to follow. But life is rarely that simple. Today’s New Normal will, however, prove very profitable for those who focus on the reality of future demand patterns, and aren’t distracted by the myths of ‘get-rich quick’ hype.