Monday, January 21, 2008

The Indian Tiger Again

I came across an interesting McKinsey Study on India's growth and potential. This takes the my last post on the Globalization Confusion related to India a bit further ahead with more data for substantiation. Among other things, the study suggests:
  • Overall approx. 5% of Indian Households have incomes above 100,000 Indian Rupees in 2006 (page 11).
  • Considering McKinsey's projections (pages 12-13), by 2025 India will have
    • 2% or 28 million people with incomes more than 100,00,00 Rupees
    • 9% or 12.6 million people with incomes in the range 200,000 to 100,00,00 Rupees (data for 2000 "real" India Rupees.
Dani Rodrick suggests that the purchasing power parity (ppp) equation is 1$=14.7INR. If we apply these ppp figures to the McKinsey study (assuming all their projections are correct) for 2025:
  • 28 million people in India will have household incomes of US$68000
  • 12.6 million people in India will have household incomes of US$13600 to US$34000
  • Of course the rest are poorer/lesser buying power/lesser income.
Now look at the situation in the US today:
  • Only 35% of the US population has an income of less than US$25,000
I am sure the marketers are not salivating at the prospect of attracting 28+12.6=41 million Indian people over incomes of US$13600 in 2025 when they can, today, market to 65% of the US population (which is roughly 200 million) having an income of more than US$25,000.

I still believe that there is more hype than substance in the India story. Of course there are some developments, but not like the ones we are seeing highlighted in the media or the stock bull run. It requires persistence, innovation and the Bottom of the Pyramid approaches to make margins in India. No wonder Tata launches Nano, an inexpensive car for US$2500.

(Hat Tip to Vinnie for the McKinsey Study)

2 comments:

Ruchir said...

Nitin,
If you check the 2nd chapter of the report, it shows that by the year 2025, the %age of population having an income of more than Rs. 2 lacs would be 42%. And if we consider that the Indian population grows by a modest 1.5% annual rate, then we have a figure of around 595 million people. That sure is a huge market for anyone to miss. However we can still question how much would Rs 2 lacs be in 2025. If we assume a modest rate of inflation of 4% annually, Rs 2 lacs then would be Rs 1 lac now. Which is still not such a big amount, but then for a marketeer it is worth looking at for.

Nitin Goyal said...

Ruchir, Agree 100%. The thing is that of you consider the Indian economy to be big with incomes of Rupees 100,000 a year, its like comparing a tiger to a kitten. Even a Tata Nano is out of reach for a household with this income. marketers salivate for incomes of US$25000 and above, not for US$2500 (1 lakh Rupees). An income of US$2500 a year requires very hard work, collecting pennies as margins, innovative approaches and even a bottom of the pyramid approach. We see many such examples in the Indian marketplace and so yes some products get it right, but these margins are not the ones which MNCs dream of capturing. Given a choice they would be much better home.