Copyright TCS Daily
28 Jun 2006
In the mid-1980s, India’s middle class comprised just 10 percent of the population. Today, it’s larger than the entire population of the United States and is predicted to grow to 445 million by the end of this decade. For 70 years, Mohandas Gandhi’s myopic vision of backward-looking socialism as a template for national advancement was accepted as revealed wisdom by a string of Indian prime ministers, starting with his acolyte, Nehru. Despite a plenitude of cotton, Gandhi didn’t think India should create a cotton industry, believing instead that every family should own a spinning wheel and spin its own. He didn’t believe India should develop a manufacturing base, which not only caused the dead hand of “import substitution” to smother native initiative, but the failure to develop factories meant there was also a failure to develop infrastructure like roads and ports to take goods to market.
Now at last, riding on a new surge of confidence at home and overseas, Indians have ditched austerity, the spinning wheel and the Mahatma and are spending it up like maharajas. In a recent survey, 90 percent of them cheerfully admitted that they spend their disposable income on non-essentials.
Twenty-five years ago, they had a choice of one car and one color: the Ambassador (top speed 35 mph); it was black and you had to order it years in advance. Today, the consumer chooses from among 40 models produced by 13 companies.
When Gandhi’s thinking still prevailed, Indians expected poor quality consumer goods (Gandhi’s beloved “import substitution”) and expected a dismissive attitude to complaints. Thus the more prudent held off buying. Today, reliability and competitive after-sales service are taken for granted.
The world’s top designers have discovered that the appetite for designer products, especially handbags and shoes, is as ravenous in India as it is in the West, and they’ve flooded in. An Indian lady no longer has to go overseas to buy a pair of Jimmy Choos. Vuitton, Chanel, shopping malls … all with customers with money and credit cards. Retail therapy trumps yoga for relaxing tired nerves.
Forbes Magazine’s Rich List last year placed India eighth in terms of the number of billionaires. The number of millionaires trebles every three years. Today, street peddlers pack cellphones.
The latest rage is the Raj. Middle class Indians from the cities are buying up houses in the hill stations in Himachal Pradesh that were built by British colonial officers for their families to escape the dusty summer heat. Houses in the Himalayan stations of Simla and Dalhousie are moving fast at prices as steep as the snow-capped peaks among which they nestle. A three-bedroom bungalow summer home in need of renovation will set the new Raj back $125,000. A bigger place might go for half a million dollars.
The Times of India’s Washington-based foreign editor, Chitanand Rajghatta, in a piece on the Indian diaspora, notes that there are around 20 to 30 million Indian nationals living in some 180 countries, “give or take a million or two who are in various transit lounges”.
No-frills airlines are having the same effect on travel as they have in Europe and the US — more discretionary flying. The four economy airlines had captured 30 percent of the domestic market in February of this year, which represented a 3 percent growth over January. Among the four big no-frills carriers is Kingfisher, owned by flamboyant billionaire and MP VJ Mallya. Mallya also owns a popular Indian beer — Kingfisher. Irked because India doesn’t allow advertising of alcohol on its territory, he decided to start Kingfisher Air at a cost of 1.5 billion rupees ($23 million) so his logo could be seen overhead.
It’s not just foreign producers of designer goods who are rushing in. In 2002, the government relaxed restrictions on foreign ownership of newspapers. Today, the UK’s Financial Times has acquired a stake in the Business Standard newspaper. Dow Jones took the maximum 26 percent stake in The Wall Street Journal venture in India. Henderson Global acquired a 20 percent state in The Hindustan Times. Foreign entertainment media companies are also pumping money in.
How does one account for this massive swell of confidence?
According to India’s Business Line, only 54 percent of Indians now think a rupee saved is a rupee earned. Part of the reason for the spendathon on mutual funds, consumer goods, property, clothes and foreign travel, thinks Business Line’s Amit Mitra, is, Indian consumers are also the most optimistic in the world in terms of their expectations for employment opportunities and the health of their personal finances. They top AC Nielsen’s Global Consumer Confidence index with a score of 127. The global average was 92. India has an estimated growth rate of 8 percent.
Surprisingly, losing out on all this trade is Britain, the former colonial administrator and major commercial partner for almost 300 years. It is that other developing giant, China, that does the lion’s share of trade with India, accounting for 6 percent of the whole. Next up, America and tiny Switzerland, with 5 percent each. Even Belgium and Germany, with 4 percent each beat out Britain’s Lilliputian 3 percent. As for imports, again, Britain has been inexplicably slow off the mark, taking just four percent of India’s exports, whereas the United States imports a whacking 18 percent. (China buys 6 percent, which is exactly what it exports.)
Commenting on this rush to the head, Sarang Panchal, AC Nielsen executive director for South Asia said, “Socially and economically, India is developing at a galloping pace when compared to the rest of the world.
“In India, the assessment of economic performance over the last 6 months has moved up smartly when compared to the previous six months. Seventy-nine percent of Indians felt that the economy had improved. The follow-through of this positive evaluation has obviously carried forward aggressively.”
He predicts: “For the coming 12 month period, Indians are clearly the most optimistic country in the world. With 88 percent of Indians bullish about the country’s economic performance going forward, we are even more positive than China. In the context of the global economy, this forms an important inflection point in our perception even amongst the international investment community.”
Val MacQueen is a TCS Daily contributing writer.
Val MacQueen – TCS Daily
Copyright TCS Daily