The Great Indian Middle Class NCAER-Business Standard New Delhi July 30, 2004 Presentation to American Chamber of Commerce

About National Council of Applied Economic Research (NCAER) »National Council of Applied Economic Research - independent body »Activities of NCAER include : - developing policy reports - macroeconomic monitoring & forecasting - human development - agriculture & rural development - industry & infrastructure - survey & general economics

Market Information Survey of Households (MISH) Only survey to be done annually since , so time-line available »MISH holds a unique position because of its massive sample size – 3 lakh urban and rural households »MISH provides income distribution separate for rural and urban areas »MISH classifies consumers by – chief earner, highest education level attained by any household member, number of earners »Growth of income based on MISH surveys is similar to that of the official NAS data »NSS surveys, and all those based on them, capture less and less of GDP with each passing year

BS Contribution »BS has done editorial analysis of the numbers »BS has published GIMC and will market the book on behalf of NCAER

What’s new about this year’s MISH? This report has been put together by NCAER and BS, as will several other reports that will be generated out of the MISH survey »Data for past years, like and , have been inflated to bring them to prices, to make all time-lines strictly comparable and relevant »Number of cities covered in The Great Indian Middle Class has been increased from 24 the last time around to 67 this time. This means cities with a population of over 5 lakh have been covered as opposed to one million in earlier surveys »Income categories have been extended upwards to Rs 1 crore a year per household for the first time »Projections have been made till on an all-India level

Consumer spending on most items continues to explode …

… But there’s the tricky issue of ‘category collide‘ (or how consumer spending in one area affects spending in other areas)

Crowing over crorepatis and other categories of rich people

Ownership pattern of major durables in

Income demographics changing, from an inverted pyramid to a rudimentary diamond (the number of non-deprived is slowing becoming bigger)

The change is starker in select cities

And it’s not just the big cities that matter

Rural demand is large in many products

Small towns are where the action is Four-wheelers Category Volumes Growth in Top 10 towns 391, towns 105, towns 102, towns 55, ,17336 (Maruti sells a fifth of its volumes in 61+ towns and growth was 33 percent. That for Hyundai was 56 percent) Refrigerators Market Size: Rs 3,500 crore 5-10 lakh towns: Rs 365 crore Colour TVs Market Size: Rs 9,000 crore 5-10 lakh towns: Rs 1,000 crore Car Loans Market Size: Rs 21,000 crore Outside top 20 cities: Rs 5,250 crore Source: Business Standard, Business Today

Choosing which rural areas/small towns is important (number of crorepati households per million households in state/city, or density) AreaNumber of householdsDensity Haryana Urban Below 5 lakh town Rural Punjab Urban Below 5 lakh town Rural Maharashtra Urban Below 5 lakh town Rural Gujarat Urban Below 5 lakh town Rural Kolkata Bangalore Hyderabad

From Capital to Capitalism

Big boom in small towns

Rurban consumers A third of population in top 67 cities are ‘deprived’ 23 per cent of Mumbai’s population is ‘deprived’

What if GDP growth slips? MISH numbers based on 8 per cent growth till What if growth is 7 per cent? Will number of rich decline dramatically?

Income Projection  Population growth (Census 1991, 2001, RGI)  Sectoral income growth (NCAER)  Income distribution (MISH ) Demand Projection for specific product  Ownership (MISH)  Penetration (MISH)  Structural change in the market  Production/Purchase (MISH and Secondary data)  Scrap rate (MISH) PARAMETERS USED FOR PROJECTION

Thank You!