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Indicus Analytics
Demand Curve is a weekly series of insights into the
Indian Economy and Consumer Markets.
The series was produced by Indicus Analytics and
published by Mint between March and September,
2009.
The series draws mainly from the Products suite of
Indicus Analytics.
These are:
District GDP of India
Industrial Skyline of India
Market Skyline of India
City Skyline of India
City Skyline of India – Neighborhood series
Indian Financial Scape
Indian Consumer Spectrum
Housing Skyline of India
Indian Development Landscape 2
1. Heterogeneity in rural markets
Most market size data on rural India takes the aggregate
households or household spend for a predetermined geographical
boundary. District boundary is the most used defining
characteristic, though some of the more research savvy look at
Unlike in urban markets market sizes down to the block level, and almost no one looks at
up-to-date village level data for their sales and market planning.
where demand is highly Unlike in urban markets where demand is highly concentrated,
concentrated, rural markets rural markets tend to be spread out. This, of course, dramatically
tend to be spread out. This increases the sales efforts and costs. Consequently, though many
increases the sales efforts rural markets look good on paper, in reality they are quite costly to
service.
and costs The best way to compare rural locations is, therefore, to look at
market density, or expenditure per unit area. The accompanying
graphic provides the 10 best rural locations in India as per this
parameter. We find that markets that are otherwise quite large, do
not show up as the best in terms of market density.
Large parts of Gurgaon have highly educated households with
organized-sector jobs living in its rural areas. Moreover, high land
values have also dramatically increased the wealth and incomes of
its traditional residents. Gurgaon’s rural area, therefore, scores
high because of the growing suburbia.
Source: Market Skyline of India The story of Kerala is different. Cash crops combined with
returning international workers, continued repatriations and high
educational profiles make its rural markets similar to urban
markets.
The story of Jharkhand and West Bengal’s districts is, however,
different. These rural markets are characterized not by high per
household expenditure, but a high population density.
The districts of Malda, Murshidabad and
Birbhum in West Bengal and Sahibganj in
Jharkhand have extremely fertile land fed by
the Ganga that has contributed to the high
population densities in these areas. Cross-
border trade with Bangladesh also contributes
to the high market density levels.
These four contiguous districts have a large
Unlike in urban markets number of poor, underprivileged tribal
where demand is highly population, and poor education levels. These
concentrated, rural markets rural markets, therefore, are more agriculture-
tend to be spread out. This dominated, combined with low per capita
increases the sales efforts incomes. Consequently, these are not
and costs premium markets such as the ones in
Gurgaon or Wayanad, Kollam or Kottayam.
They are large markets characterized by
greater demand for low-quality, low-cost
goods and services.
4
Density, therefore, is just one measure that
companies interested in servicing rural markets
need to look for. There is a large heterogeneity
in the character of rural markets. The Union
territories of Daman and Diu, Lakshadweep and
Chandigarh top the charts in rural market
density, while among the states it is Kerala,
West Bengal and Haryana that lead.
However, there are significant differences in the
market characteristics in these states. Some
such as those in Kerala are large markets of
premium goods and services—but they have a
mobile consumer base that can travel to
neighbouring cities for major purchases.
At the other extreme are the large markets such
as those in West Bengal, that are characterized
by a poorly educated, poor and underprivileged,
relatively immobile but large consumer base.
Source: Market Skyline of India These markets would be low in purchases of
premium products or durables. Demand Curve
is a weekly column by research firm Indicus
Analytics Pvt. Ltd on consumer trends and
markets.
5
2. Suburbs have come to be independent economic entities
No analysis on the top Indian cities can be complete without a mention of the suburbs around them.
Typically, a suburb is a residential area or community outlying a city such that those living in the suburb
can commute to the main city for their economic needs. Internationally, the term suburb conjures up
images of a relatively unspoilt, less densely populated and predominantly residential community close to
a city. In India, it is difficult to find such conditions. Whether it is Gurgaon, or Salt Lake, we find them to
be economic entities quite independent from the larger city near which they are located.
For instance, Noida, Ghaziabad, Faridabad, and
Gurgaon are much more than mere suburbs of
New Delhi. But they are also not large enough to
be called New Delhi’s twins. These are younger
cities which may, one day, even overtake New
Delhi.
These sibling locations include There are quite a few such locations in India.
communities that may be large such There is Salt Lake near Kolkata, Navi Mumbai in
Thane district, the communities on Bangalore-
as Navi Mumbai or small such as
Hosur and Bangalore-Mysore routes in Bangalore
Salt Lake or spontaneously arisen rural district, Pimpri Chinchwad near Pune, and so
such as large tracts of Ghaziabad, on. And there are many more across the country,
with good urban planning such as not as well known yet, but will be known soon
enough.
Noida or without quality These cities typically fulfil an important need that
infrastructure such as Gurgaon the larger city was unable to offer. In the initial
phase they may have been unidimensional but
over time they have gained a distinct character
and momentum of their own. The lack of office
space in New Delhi, the lack of new residential
Source: Market Skyline of India areas in Kolkata and expensive real estate in
Mumbai have contributed to the growth of Salt
Lake, Gurgaon, and Navi Mumbai. Now all three
are more than just real estate alternatives to
larger neighbours.
7
These sibling locations include
communities that may be large such as
Navi Mumbai or small such as Salt Lake
or spontaneously arisen such as large
tracts of Ghaziabad, with good urban
planning such as Noida or without
These sibling locations include quality infrastructure such as Gurgaon.
communities that may be large such as Some have a large concentration of
Navi Mumbai or small such as Salt high-income households such as
Lake or spontaneously arisen such as Gurgaon, others like those around
large tracts of Ghaziabad, with good Kolkata have a large number of poor,
urban planning such as Noida or still others such as Navi Mumbai tend to
without quality infrastructure such as have a large middle class.
There is only one thing in common
Gurgaon
between them—they are in the
geographical vicinity of a larger city. And
they are increasingly becoming more
important than their older sibling.
Source: Market Skyline of India Demand Curve is a weekly column by
research firm Indicus Analytics Pvt. Ltd
on consumer trends and markets.
8
3. Middle class accounts for bulk of urban spending
What we find is that it is the
middle bulge of expenditure
by the middle class that
accounts for the bulk of
India’s urban consumer
expenditure
The bottom of the pyramid is the buzzword that has captured the hearts and minds of academics and
marketeers alike. Though large in numbers, the consumer spend by this segment is quite low.
What we find is that it is the middle bulge of expenditure by the middle class that accounts for the bulk of
India’s urban consumer expenditure. About 61% of total urban income comes from households that can be
classified as middle class—earning be-tween Rs75,000 and Rs 5 lakh a year.
This segment comprises the lower middle-class earning between Rs75,000 and Rs1.5 lakh a year (10% of
total urban income is from this category), the middle-class earning between Rs1.5 lakh and Rs2 lakh a
year (29% of income share) and the upper middle-class earning between Rs3 lakh and Rs5 lakh a year (22
% of urban income).
By market size, the largest urban middle-class markets are in the main cities, with Delhi in first place,
followed by Mumbai, Ahmedabad, Bangalore, Chennai, Kolkata and Pune. There are also other attractive
markets that are in the second rung and whose middle class spends between Rs5,000 crore and Rs10,000
crore a year.
This group of urban areas includes those
that benefit from proximity to the metros—
Rangareddy to Hyderabad and Tiruvallur
What we find is that it is the to Chennai. West Bengal has three
middle bulge of expenditure by districts in this list, Burdwan, Howrah and
the middle class that accounts Hoogly, whose large population is a
for the bulk of India’s urban significant factor in expenditures by the
consumer expenditure middle class.
There are other cities as well that are
more than just suburbs of larger cities.
Source: Market Skyline of India Jaipur is not only the capital of Rajasthan,
it is also the gateway to a large but thinly
spread market in the interiors of the desert
state. Nagpur is among India’s most
cosmopolitan cities with people from
Gujarat, Andhra Pradesh, Madhya
Pradesh and also the east, found in large
numbers. The fact that it is the closest to
being at the geographic centre of the
country helps a bit.
10
Nashik has risen on the back of its
cooperative movement and the
technologically progressive farmers in its
vicinity. Rajkot is the capital of erstwhile
What we find is that it is the Saurashtra, an important centre for small
middle bulge of expenditure and medium enterprises. Baroda was
by the middle class that known as the cultural and educational
accounts for the bulk of capital of Gujarat and though it has since
India’s urban consumer the 1970s lost this position, its large
expenditure industrial base continues to power
consumer spending.
The size and expanse of the great Indian
middle class does not follow any
Source: Market Skyline of India standard patterns and theories. It is
created via a combination of agriculture,
industry, human capital, good
infrastructure or trade.
The story of every so-called tier-2 town is
different, but there is one thing they have
in common with each other—large
middle-class expenditure.
Demand Curve is a weekly column by
research firm Indicus Analytics Pvt. Ltd
on consumer trends and markets.
11
4. Smaller towns are more affected by the monsoon
So far manufacturing & service
industries have been flagging in these
cities, but the combination of high
agricultural activity & production of
commercial crops makes these towns
ideal locations for processing of these
agricultural products
Source: City Skyline of India
Not everyone realizes that dependence on the monsoon is not limited to rural areas alone. Workers in
many Indian cities are heavily engaged in agriculture and related activities, and for them, the monsoon will
play an important role.Naturally, the smaller the town, the larger the share of agricultural dominance. As
cities grow in size, agricultural land is taken over for non-farm activities, and industry and services
proliferate. Metros, for example, have less than 2% of their workers in farm-related activities, and this, of
course, includes fishing in Mumbai, Chennai and Kolkata.
These Alpha cities have the largest market sizes, but at the other end of the spectrum are the Delta cities,
a large group of 50 cities that are budding, or have the potential to turn into much larger centres. It is this
group of cities that have a preponderance of labour engaged in primary sector activities. Clearly, along with
the rural markets, these towns owe their income more to agriculture than to industry or service sectors, and
consumer expenditures in these cities will, to a large extent, be vulnerable to the vagaries of the monsoon.
Source: City Skyline of India
Many of these Delta cities are steadily gaining the necessary scales in terms of population and market size.
Capitals of states and Union territories, such as Gandhinagar, Srinagar and Shillong, centres that are siblings
of larger cities such as Gurgaon and Noida (near Delhi), industrial centres such as Durg-Bhilai (Chhattisgarh)
and Bokaro (Jharkhand), historically important cities such as Udaipur (Rajasthan) and Mysore (Karnataka),
large emerging centres such as Jamnagar (Gujarat), religious cities such as Varanasi (Uttar Pradesh) and
Ajmer (Rajasthan), etc.
If we look at the set of Delta cities that have at least 60% of their workers engaged in the primary sector, it is
curious that they lie geographically almost totally in the south-central belt of the country; only Shimla is an
exception. Durg-Bhilai, of course, is a mining centre.
So far manufacturing and service industries have been flagging in these cities, but the combination of high
agricultural activity and production of commercial crops, such as sugar cane, cotton, groundnut and chillies
makes these towns ideal locations for processing of these agricultural products through further stages.
However, these towns have not yet boomed into manufacturing centres.
Purchases of many services and manufactured goods in these centres are directly affected by the
performance of the agriculture sector. High-end hospitals in Gurgaon, for instance, are looking at the rural rich
as an important new consumer segment to target in this era of manufacturing and services slowdown. Even
the government is becoming more sensitive to the underlying economic structure.
The first farmer special economic zone in the country is to be set up in Nellore district of Andhra Pradesh, and
this should be a cue to other centres to develop accordingly and put in place the backward and forward
linkages necessary to add value to the already existing agricultural resources within or close to urban areas.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and 13
markets.
5. How multiple-income family types differ across cities
As India and Indian consumers change
rapidly, there is one churn that has
already played out in urban India. The
joint family is dead and the extended
family is dying. It is now the era of
nuclear families
Households in India can be classified into three types: nuclear families where one married couple lives
with, in some cases, unmarried siblings; extended families which have more than one married couple from
different generations; and joint families where more than one married couple of the same generation live
together, which are essentially multi-income families.
That the joint family system is out of mode in urban India is clear from the fact that only 8% of the
households belong to this category in India’s top 112 cities. Nuclear households dominate the urban
landscape with almost 70% of households falling in this category, while extended families take up the
remaining 23%, a sizeable share. This reflects, to some extent, the lack of housing capacity to
accommodate nuclear families, a status that upwardly mobile urban Indians seem to aspire to.
Source: Housing Skyline of India
Looking at the largest Indian cities, the alpha cities and the cities in the south have a larger proportion of
nuclear families, while those in the west have a greater tendency towards more extended and joint family
setups. Why is that the case? There are likely to be economic and socio-cultural reasons that have not been
studied in great detail. But the patterns are clear.
Households in the south are predominantly nuclear, have fewer children and tend to have higher incomes
than their peers in the north and east. Resource allocation within the households, therefore, takes on a very
different character.
The western part of India has also benefited from greater economic growth. However, a significantly larger
share of households continue to live in extended and joint families. Decision-making in these households
tends to be different, with a greater number of people having a say in major purchases.
At the other end, spur-of-the-moment purchase decisions will be less likely, especially in durables that the
household members share in the larger and more complex households of western India. At the same time, per
capita expenditure in larger households tend to be lower, leading to greater possibility of savings or purchase
of luxuries, depending upon household preferences.
As India and Indian consumers change rapidly, there is one churn that has already played out in urban India.
The joint family is dead and the extended family is dying. It is now the era of nuclear families.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets. 15
6. How cities define size of households
The majority of households in the top 112 cities in India constitute between three
and five persons, including children and adults. Yet, at least a quarter of the
households have at least six persons in it, and just 15% consist of one-two people
living under one roof.
Typically, cities in southern India and larger cities tend to have smaller households.
This is partly due to lower fertility rates among women who are better educated and
live in households with higher incomes—both more likely in the south and in larger
cities. But education and awareness are not the only criteria that determine
household size.
Source: Housing Skyline of India
Cities that are growing rapidly and have high levels of in-migration also tend to have
smaller households. Early migrants tend to be unmarried, and, even if married, may
live by themselves. It is only after a few years of living in a new location, and after they
establish themselves, do their families join them.
It is for this reason that cities such as Allahabad, Kanpur, Srinagar or Gulbarga—with
low economic growth and in-migration—tend to have a larger share of large-sized
households. Cities such as Faridabad, Kanchipuram and Mangalore that are relatively
more dynamic with high economic growth tend to have fewer large households.
The size of a household has a huge impact on purchases of consumer goods. Larger
households typically spend less on consumer goods on a per capita basis as they are
able to share better. For the same reason, larger households are more able to afford
better quality of consumer goods.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets. 17
7. India is witnessing a durables revolution
As incomes increase,
media reach increases,
electrification spreads
and education levels
rise, and the demand for
durables expand Per household expenditure on durables (Rs. per annum)
significantly Mumbai
(Suburban)
Wayanad
Mumbai
Source: Market Skyline of India Kinnaur
Nainital
Udupi
Kolkata
Solan
Ludhiana
North Goa
0 5000 10000 15000 20000 25000 30000 35000 40000
Source: Market Skyline, Indicus Analytics
Consumer durables include not just white goods, such as refrigerators, air conditioners and cars, but also
goods such as furniture and kitchen appliances.
The largest markets for durables are naturally states with large population. Yet, Maharashtra leads on
account of higher income, followed by West Bengal and Uttar Pradesh. Interestingly, Kerala and Gujarat,
states with considerably smaller populations, make it to the top five states in markets for consumer
durables, with better income levels and infrastructure distribution.
At a finer geographical level, the largest markets for durables are naturally in the larger cities, where
greater incomes and population numbers warrant greater expenditure and also typically ensure better and
greater supply.
However, it is not that the poor do not consume such items. There are many essentials included in the durables
category, such as utensils, basic furniture, etc. Consequently, total durables expenditure is defined by the
income, size and location of a household, not to mention household preferences.
Location, therefore, matters a lot. Areas that have better power availability make it feasible to use white goods;
consequently, rural areas tend to have lower penetration of durables for the same level of income.
At the same time, even if incomes are higher, smaller homes are less able to purchase more durables. To take
an extreme case, a household living in an urban slum would tend to have fewer durables than a household with
similar incomes in a rural area, or in a non-slum urban area.
Similarly, we find that households that have greater education levels and those where there are a greater number
of older persons tend to spend more on durables.
Per household annual expenditure on durables, therefore, reflects many of these forces that work in tandem. Goa
has among the highest per capita incomes in the country, insignificant slum population, greater education levels,
etc. Not surprisingly, it has among the highest durables expenditure on a per household basis.
The district of Ludhiana in Punjab comes next, driven mainly by its high incomes in both urban and rural areas.
Households in Himachal are not surprising entrants into this league—a large part of Himachal’s youth reside in
the plains, repatriating their surpluses to those at home. The easy availability of electricity, the colder climate and
better infrastructure, all enable its households to derive the full benefits that durables offer.
Mumbai, Kolkata and other larger cities tend to be lower in this categorization despite their higher incomes simply
because they have large slum populations; hence, on a per-household basis, they show up as lower even though
they remain the largest market for consumer durable purchases.
As incomes increase, media reach increases, electrification spreads and education levels rise, we expect the
demand for durables to expand significantly. Moreover, as rural roads are able to connect the hinterlands across
the country, the costs of supply will also fall.
In other words, a great durables revolution is currently occurring in the country, and whether India grows at 6% or
8% a year, this spread of household durables is likely to see a continued growth at a rate far greater than overall
consumption expenditure..
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets.
19
8. Why some cities are getting younger and some are not
One factor that influences
the number of young people
in a city is its attractiveness
for migrants and then there
are educational
considerations
Source: City Skyline of India
New Delhi leads the country in terms of its population of young adults. At four million, the proportion of
people between the ages of 18 and 24 in the city is 25%. Mumbai and the urban areas of Thane (this
includes all satellite towns of Mumbai in Thane district, including Navi Mumbai) follow with 2.6 million and
1.8 million, respectively, while Bangalore is fourth with 1.3 million. Interestingly, Kolkata and Chennai do
not make it to the Top 10—not just in terms of the absolute population of young people, but also in terms of
proportion (in both cities around 18% of the population is accounted for by the young in the age group of
18-24 years). Both Kolkata and Chennai have a larger share of people above the age of 45 than other
cities.
One factor that influences the number of young people in a city is its attractiveness for migrants—
Bangalore’s software industry and Surat’s textile and jewellery industries are natural magnets for the youth.
Then there are educational considerations; cities such as Pune, Delhi, and Hyderabad have become hubs
for higher education, bringing in students not just from within their states, but also from other regions.
Yet, in most of these cities, as share of total population, the proportion of the young does not exceed 25%.
In just six of India’s top 112 cities, this proportion is higher than 30%. On top of the list of the six is Noida, a
New Delhi satellite. It has become the preferred base for students and single people, and is close enough
to New Delhi for them to commute daily.
But what draws the youth to some cities? Educational
opportunities are one factor, but not the most significant. A large
number of young people in cities popular with the young are not
graduates. These people largely find jobs in the so-called
unorganized sector. Cities with high economic growth (Delhi, Pune
and Surat being some examples), and, consequently, a bigger and
thriving unorganized sector are, therefore, far more attractive than
others with much better educational options.
Population growth and high fertility rates in the city and in its
surrounding areas are another factor and an important one.
Allahabad is a case in point— high fertility rates in eastern Uttar
Pradesh and Bihar have resulted in there being more young
people in this area. And Allahabad is among the few large cities in
that part of the country. Bokaro is another such area, and also one
with a distinct advantage—its large mining and basic industry is a
magnet for uneducated or marginally educated young people.
Similarly, Kohima has the maximum opportunities in terms of
education and jobs in Nagaland, and is, understandably, popular
with the young.
Smaller cities might have a larger proportion of young people than
bigger ones, but the most number of young people continue to be
clustered in the major metros or their suburbs. This is not
surprising. Young people aspire most towards greater options and
opportunities, and by their very size, larger cities are able to offer
the largest menu of choices— for income and entertainment. The
poor infrastructure in India’s smaller cities does not help matters,
and this often chases away those who are going to build India’s
future.
Demand Curve is a weekly column by research firm Indicus
Analytics Pvt. Ltd on consumer trends and markets. 21
9. People in large cities earn more but save much less
If India’s top 112 cities are
classified into metros, state
capitals and other cities, we see
that metros on an average have
the lowest savings rate and
highest per capita income Source: City Skyline of
India
23
10. The Indian rich- who are they and where do they live?
Mumbai and Delhi are homes
to very affluent
neighbourhoods, in terms of
the number of affluent
households
The affluent are those who have a large amount of wealth and spending power. This is also most likely to
be reflected in their high-income profile. As is evident, the bulk of the affluent in India reside in urban
areas; it is also likely that they are most concentrated in the larger metros.
However, that does not imply that the affluent do not exist in other parts of the country.
Large rural landowners, agricultural commodity traders, contractors, public servants, or those living in
large farms or farm houses in the vicinity of (but not within) large urban centres are spread across India.
They tend to travel nationally and internationally, and can access products aimed at them through many
different sources.
The affluent tend to be very different from those less economicaly fortunate. Affluent households tend to
have lifestyles characterized by lesser physical work, greater expenditure on entertainment, less time spent
on day-to-day necessities of household chores and occupation. They also have a different disease profile.
Mumbai and Delhi are homes to very affluent neighbourhoods, in terms of the
number of affluent households.
As is evident, the Oshiwara in Andheri (West) is the richest neighbourhood in India, in terms of
the number of millionaire families, with at least 15,000 households having
bulk of the affluent annual incomes of at least Rs10 lakh. In fact, of the top 20 neighbourhoods in
in India reside in India, in terms of number of millionaire families, as many as 18 are in
Mumbai.
urban areas; it is The top ranking neighbourhoods in Mumbai are Oshiwara, Sahar, Walkeshwar,
also likely that they Mahalakshmi, Versova Creek, Chembur West (Golf Club), and Borivali West.
The richest neighbourhood (in terms of the number of millionaire households)
are most in other major cities are: Rohini in New Delhi (overall rank 9), JP Nagar in
concentrated in the Bangalore (overall rank 42), Adyar West in Chennai (overall rank 48) and
Beckbagan-Ballygunge in Kolkata (overall rank 78).
larger metros. There are 166 neighbourhoods in the country’s five major cities that have at
least 1,000 households having annual incomes of at least Rs10 lakh (out of a
total of 626 neighbourhoods which together make up these five cities). Of
these, 37 are from Bangalore, 11 from Chennai, 47 from New Delhi, nine from
Kolkata and 62 from Mumbai.
In terms of total income (sum total of incomes of all the households), the
richest neighbourhood in India is Bhandup in Mumbai, with an aggregate
income of a little over Rs6,400 crore. The top 15 neighbourhoods are again all
from Mumbai. These include Oshiwara, Sanjay Nagar (Chembur East),
Matunga-Sion, Sahar, Dadar Plaza, Chembur West (Golf Club), and Borivali
West.
Rohini, Preet Vihar, Rithala, Greater Kailash II and Greater Kailash I are the
neighbourhoods with the highest incomes in New Delhi.
The top neighbourhoods in Bangalore, Chennai and Kolkata are Padmanava
Nagar, Thiruvanmiyur (East) and Jodhpur Park-Indian Institute of Chemical
Biology, respectively.
There are 181 neighbourhoods in the five major cities with aggregate incomes
of Rs600 crore or more.
Of these, 21 are from Bangalore, 10 are from Chennai, 79 are from New Delhi,
two are from Kolkata and 69 are from Mumbai.Demand Curve is a weekly
column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets. 25
11. Indian cities should make space for low-cost housing
Rising slum and squatter settlements in cities is a clear sign that the demand for the
low-cost housing is not being met through formal housing stock.
Source: Housing
Skyline of India
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets. 29
13. Finance institutions need to focus on expanding market
On average, only 16% of Indian households
have taken loans from institutional agencies--
commercial banks and cooperative societies.
Financial inclusion is a stated policy of the government and the central bank,
but it will take some concerted effort to bring more of the population into the
network of formal financial services.
The current spread of formal finance network is quite inadequate. At least
60% of Indians do not have access to the banking system. Even though the
average number of people that a bank branch serves is around 15,000, there
are six states where each branch serves around 20,000. These states are
mostly in the east.
The inadequate spread of banking is reflected in the data on credit as well.
On average, only 16% of Indian households have taken loans from
institutional agencies—commercial banks and cooperative societies. Non-
institutional agencies, including moneylenders, friends and relatives, have a
higher reach at 22%.
Again, sharp regional differences show up, with Kerala coming up high on
indicators of banking and finance. As many as 14 of the top 20 districts that
have access to institutional credit are from Kerala. The districts of Kottayam,
Kannur and Idukki top the list, with at least 65% of households taking loans
from institutional agencies.
Kerala, however, has some peculiar characteristics that help explain this
widespread integration with the formal financial system—high literacy and
educational levels, well-connected rural areas as density of population is high,
and remittances from overseas migrant workforce. All these make for an Source: Indian
Financial Scape
environment more conducive towards higher access to formal finance.
At the other end of the spectrum are districts where less than 1% of
households have taken credit from institutional agencies. These are mostly
in Assam, Manipur, Meghalaya, Arunachal Pradesh, Jammu and Kashmir
and Mizoram, where the banking system is extremely underdeveloped given
constraints of a low density of population, poor connectivity and law and
order concerns.
In regard to the penetration of non-institutional loans, the focus shifts from
Kerala at the top end. Here, the top 24 districts have penetration ranging
from 50-53% and are mostly located in Tamil Nadu and Andhra Pradesh.
These are the states where microfinance and self-help groups have spread
into the hinterland.
The districts languishing at the bottom remain the ones from the hill states.
In fact, 64 districts have less than 7% penetration of non-institutional loans.
Of these, two are from Andaman and Nicobar, 13 from Arunachal Pradesh,
14 from Jammu and Kashmir, seven from Meghalaya, eight from Mizoram,
four from Sikkim, 13 from Uttarakhand and three from West Bengal.
At a broader level, there is a clear need for better services in the hill states.
The question remains whether the government measures of banking
correspondents, using post offices, etc., will reap dividends in expanding the
financial network in areas where topography and socio-economic
characteristics remain tough barriers to overcome.
Essentially, there are two clear characteristics of household access to
finance. One, the bulk of the population is financially underserved and rely
on informal lending. Two, non-institutional agencies have together achieved
a much higher penetration than institutional agencies. The need of the hour
is for financial institutions to focus more on expanding the market rather
than flog the existing ones. And for this, innovative use of technology just
might be the way to go.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt 31
. Ltd on consumer trends and markets.
14.New manufacturing sectors in eastern India
The phenomenal growth in the Jharkhand and the Chhattisgarh has seen the share
of manufacturing in their GDP rise dramatically as they have attracted industrial
projects
Source: District GDP of India
India’s manufacturing sector has been coming off its
high growth path since the first quarter of 2007. This graph shows the share of various states in
India’s manufacturing output and their income from
Large parts of India remain outside the impact of this
downturn, as their economies are largely related to the manufacturing activity in 2007-08
As marketers look increasingly at small towns, they will need to differentiate between
the attributes of cosmopolitanism and westernization
Two states from where migration is relatively high and remittances a major source of
income are Kerala and Bihar. Interestingly, the two stand at the opposite ends of the
Indian development landscape
Migration in search of work ensures
that cities maintain their high
growth rates. When people move
out of their homes for work, their
families often stay behind, living on
remittances sent by their working
relatives.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. 39
18. Rural markets help makers of consumer goods
grow steadily
States where sale of personal and home care products is high are those with either
higher incomes or large populations
One sector that continued to gain steadily despite the economic
slowdown was the market for personal and home care products. A
reason for bucking the trend was these companies have discovered
rural markets, which now contribute a little more than half the total
sales for such products in the country.
States where sale of personal and home care products is high are
those with either higher incomes or large populations. Maharashtra
has the highest share of 16%, with high disposable incomes in the
Mumbai-Pune belt and a large population. Andhra Pradesh is second
due to its rapid growth in urban incomes, along with West Bengal,
where population along with steady income growth in the 1990s is
the predominant factor for high sales. Uttar Pradesh, the most
populous state, comes in at fourth with 8% share of the market.
District-wise analysis shows that the largest concentrated markets
for these products are naturally in the large metros or their suburban
districts. But Medinipur in West Bengal, on account of its large
population, stands out. The other is Surat in Gujarat, which also has
a rapidly growing population as well as income. Both are easy entry
points for sales networks.
In recent years, the list of states where growth has exceeded 10% a
year since 2006-07 also includes Orissa, Chhattisgarh and
Uttarakhand. But these markets are still small. Gujarat, on the other
hand, is a large market, and also tops growth performance.
The main reasons for the growth in rural areas in the recent past have been improved incomes, good
monsoons and the government’s rural employment guarantee programme, among others. As rural markets
have now been perceived as untapped high-potential markets, firms are adapting their distribution networks
and marketing strategies to increase rural penetration.
Traditionally, rural incomes and expenditures show high volatility due to the vagaries of rainfall which
determines most of India’s farm output and volatility in prices of farm products. But this is changing slowly
but steadily.
Agriculture is increasingly accounting for a lower share of rural incomes. Repatriations from migrants,
increased role of the services sector and an increased role of unorganized and organized manufacturing are
steadily chipping away at the overall share of agriculture incomes in rural areas.
Also, government interventions such as the National Rural Employment Guarantee Scheme—the
government’s flagship welfare programme that ensures 100 days of employment to a member of a poor rural
household—greater agriculture credit, increased role of groundwater for irrigation and government
purchases of farm products at predetermined prices have helped in reducing volatility in rural incomes.
Rural households today depend on more than one source for their incomes. An individual may work in a farm
or at a construction site or migrate to an urban area temporarily. Other individuals within the household may
be involved in home-based work. This diversification helps stabilize household purchases.
However, agriculture incomes still have large enough multipliers in rural areas to affect rural purchases of
personal and home care products. The current monsoon has not yet showed all its cards, but it has held
back enough for the makers of these products to be concerned.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets. 41
19. East India set to make swift progress
Orissa, Chhattisgarh and Jharkhand have returned growth rates higher than the
national rate since 2000-01
But there are many challenges ahead. The poor quality of governance
has contributed to an increasing Naxalite problem. These groups are
active, well networked and spread. Go a few kilometres beyond the
boundary of most cities, and Naxalite activity is evident. There is a
deeply entrenched distrust of market forces and the opportunities that
they could provide. And for good reason. A poor ethical record,
exploitation of the uneducated and illiterate, misuse of power, broken
promises and so on. have been the tools used by small traders, and
large companies, not to mention the government.
44
Markets cannot function in a society that is ruled by distrust and suspicion. And markets cannot function
when the state cannot ensure security of life or property. Rebuilding trust is a necessary precondition for the
full potential of the east to be realized.
And so there is a long way to go, especially in improving the urban centres of growth. Kolkata and its
surrounding areas—Raipur, Asansol and Ranchi—are the only urban markets that rank within the top 40
urban markets in India.
These markets are relatively smaller and are dependent to a high degree on cash-based transactions; credit
is difficult to obtain for both businesses and consumers. But do not count these cities out. For it is a rich
region where investment worth hundreds of thousands of crores of rupees will rapidly come in once the
problem of distrust in markets and state is addressed.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets.
45
20. The North’s geography of growth
While Chandigarh tops the chart with high growth and the highest per capita income
in the country, Madhya Pradesh (MP) is at the bottom of the pile, with less than 5%
growth this decade
Most north Indian states have turned in
growth performances lower than the
national average this decade. Despite
the huge population advantage, these
states have lost out to the west and the
south, which have led India’s economic
growth.
India’s savings, at around 33% of gross domestic product (GDP), are among the world’s highest. Of this,
households save about two-thirds or 22%, much higher than that in most countries. But there are large
differences between states.
India is known for its stereotypes— south Indians are said to save a larger share of their income, while north
Indians are believed to be spendthrift. But looking at urban incomes, this is not justified in practice. The only
southern state in the top five rankings on urban savings rates is Kerala, which has significant remittances from
outside the state. Nagaland, which has seen high income growth since 2000 at 9.2% per annum, tops the
chart of urban savings rate. Bihar is also among the top saving states in India when we look at household
savings as a share of household incomes.
There is no cultural issue here, but strong economic reasons why some locations have greater savings than
others. Nagaland has high urban incomes and Bihar has low credit options but poor governance and lack of
supplementary laws prevent creditors from giving credit; households, therefore, need to save more to buy
assets such as homes or land. Both states have law and order problems that also affect consumption options.
When there is high uncertainty about income flows, precautionary savings take precedence over satisfaction of
present consumption needs.
At the district level, on a per capita basis, we find that
high savings districts are spread all over the country.
Gautam Buddha Nagar in Uttar Pradesh to Vadodara in
Gujarat, to Tiruvallur in Tamil Nadu to Singhbhum in
Jharkhand—we find many districts that have a high
propensity to save on a per capita basis.
When there is high uncertainty What are the key factors that determine savings? First
about income flows, is, incomes, and some locations are growing more
precautionary savings take rapidly than others. Second, available avenues to spend
precedence over satisfaction of —those that have better security of property and life,
present consumption needs and have better infrastructure, tend to score well on this
count. Third, availability of avenues to save—locations
that have a better financial sector infrastructure would
tend to do better.
Fourth, pre-committed expenditures—locations where
there is lack of credit availability, or those where the
dependency ratio (dependants per earner) is high, tend
to perform poorly on this count. Fifth, a combination of
these is then supplemented by available return or
interest to impact savings at the household level.
Hence, the current environment of uncertainty and
economic slowdown would affect different locations
differently.
Demand Curve is a weekly column by research firm
Indicus Analytics Pvt. Ltd on consumer trends and
markets.
25. The new contours of rural affluence
Who are the rural rich? We use a simple definition—households having annual income greater
than Rs5 lakh a year, or slightly more than Rs40,000 per month. Gujarat, due to its large cash
crop production, Uttar Pradesh because of its large size, Kerala, with its cash crops plus
returning migrants, and Punjab and Haryana account for the largest number of rural rich. But if
we look at the concentration of the rich, namely, the percentage share of rich households to the
total households, we find a different picture. The small states of Goa and Delhi are also
included in the Top 5.
Why is rural Gujarat more prosperous than UP, despite the fact that the latter has much better
soil and a far better agricultural ecosystem? Gujarat has made rapid advances in rural
infrastructure for the last many years, it has a high proportion of land devoted to cash crops,
and its farmers have benefited from Bt cotton, a biotech crop. On the other hand, Punjab and
Haryana have a stagnating agriculture with tapering or falling productivity increases.
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Nagaland, at the other end of the country, has taken to cash crops in a big way, cardamom being one of its
rapidly growing crops. Being a small state, though, the market size is smaller than in other states, and
connectivity still needs significant improvement. Still, this is one state that has been doing particularly well in
agriculture in the recent past.
The district-level story yields even more interesting insights. Three districts from Kerala make it to the top of the
charts. Wayanad, with its commercial crops and plantations of coffee, tea, pepper and rubber, leads in the
number of rural rich households and has also become an attractive tourist destination. Midnapore in West
Bengal is the only district from the east in the list. A large district with a high population density, Midnapore has
seen farm production grow steadily in the last two-and-a-half decades.
But rural affluence does not stem solely from agriculture. A large number of households in Kerala benefit from
remittances as well as returning migrants. Gurgaon in Haryana has seen rapid increases in land values in its
urban area. With prospective developers buying up large tracts of land, many of Gurgaon’s rural inhabitants
have entered the ranks of the affluent by selling their land. To some extent, the story is similar for Surat in
Gujarat, one of the most rapidly growing cities of the 1990s and 2000s.
Rural affluence today is not only about agriculture, though it does have a strong role to play. In a country where
the share of agriculture in the economy is falling steadily, it is but natural that many areas would have non-
agriculture related stories. Yes, manufacturing, trade and construction are the new drivers of rural affluence.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
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markets.
26. Cities of the west: powering India, but for how long?
A heady combination of location, history, circumstances, and perhaps the most
important—initiative is what makes western India fare better
The most important factor in long-term progress is sustained effort. This is the reason behind Gujarat’s
growth, both in the 1990s and 2000s. And that is why, despite being a heterogeneous state with diverse
requirements, Maharashtra remains among the states with the best infrastructure. The same holds good for
Goa, Daman and Diu, and Dadra and Nagar Haveli.
These states have made a good headstart over others, but there are significant challenges ahead in
keeping this achievement up, and with higher exposure to international markets, this region is also the worst
hit during a global crisis. Growth has contributed to rapid in-migration, which has affected the demographic
and socio-economic structure of the cities. And different cities are responding differently. While increasingly
Maharashtra’s politics is reflecting opposition to incoming talent, that of Gujarat has been relatively more
sanguine. While Goa has generated large employment opportunities, its youth are suffering among the
highest unemployment rates in the country. The communal stresses that were once observed in Gujarat
continue to simmer.
This region’s success has shown that economic growth throws up other challenges that need to be
addressed at the educational, political and social levels. Otherwise, growth will be affected, stunting
progress for all. Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer
trends and markets.
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