Deciphering India's Demographic Puzzle

8/8/2019 Deciphering India's Demographic Puzzle

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STRATEGIC MANAGEMENT GROUPSTRATEGIC MANAGEMENT GROUP

Deciphering India’s Demographic Puzzle: A Consumer & Retail Perspective

The projected shift in age groups, emergence of large distinct income groups, increasing

relevance of urban India and growing share of large cities within urban India areimportant triggers for companies in consumer facing industries to revisit their strategies,

else risk being caught off guard, say Pankaj Gupta, Practice Head - Consumer & Retail

and Rajiv Subramanian of Tata Strategic Management Group. Between 2006 and 2016, India’s increase in population is expected to be 157 Mn, which

is a little greater than the current population of Russia. Within this addition, demographic

shifts like a larger working population, increasing urbanization and a burgeoning middle

class have been topics of extensive discussion. However, certain other trends like the

decrease in the <14 years age group, increase in >60 years age group, greater

concentration of urban India and rapid increase in the number of high income

households may have been overlooked. These trends could be crucial for companies in

the consumer centric products and services domain in identifying future opportunities

and threats.

India’s Changing Age Mix

Projections indicate a 35 Mn increase in the old age population (>60 years) between

2006 and 2016. This is facilitated by the anticipated improvement in the life expectancy

levels from 68.1 in 2006 to 71.1 in 2016. States like Tamil Nadu, Andhra Pradesh, West

Bengal, Maharashtra and Uttar Pradesh are the major contributors of this addition.

• 118 Mn old age population (>60 years) by 2016

• 17 Mn reduction in the <14 years age population

• U.P, Maharashtra, Bihar, Rajasthan and M.P contribute to >50% of the addition

in working age(15-59 years) population

<14

years

27%

15-59

years

64%

>60

years

9%>60

years

8%

<14

years

32%15-59

years

60%

2006 2016

Table 2: Shifting Age Mix Proportion (Percentage)

669811

83

118

~356 ~340

2006 2016

Table 1:Shifting Age Mix (Mn Persons)

<14 years

15-59 years

>60 years1108

1269

Source: Population Projections 2001-2026 (Census Commissioner), Analysis by Tata Strategic

<14

years

27%

15-59

years

64%

>60

years

9%>60

years

8%

<14

years

32%15-59

years

60%

2006 2016


669811

83

118

~356 ~340

2006 2016


<14 years

15-59 years

>60 years1108

1269

<14

years

27%

15-59

years

64%

>60

years

9%>60

years

8%

<14

years

32%15-59

years

60%

2006 2016


669811

83

118

~356 ~340

2006 2016


<14 years

15-59 years

>60 years1108

1269




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In the 0-14 years age group, a 17 Mn population reduction is expected in the 2006-16

period (Table 1), of which the 10-14 years age group will be the major contributor. This

trend is expected across all states with the exception of Uttar Pradesh and Delhi.

The projected increase in working age population (15-59 years) has been repeatedly

cited as the foundation for India’s future positive economic direction. Uttar Pradesh,

Maharashtra, Bihar, Madhya Pradesh and Rajasthan are expected to contribute more

than 50% of the 142 Mn increase in the labor pool between 2006 and 2016.

Emergence of Large, Distinct Consumer Income Segments

Between 2005-06 and 2013-14, the number of households with annual income greater

than Rs 12 Lakh (USD 30,000) will grow nearly four fold. Within this band, there are 3.4

Mn households with an income in excess of Rs 24 Lakh (~USD 60,000) at 2005-06

prices. This segment is likely to include more than 15 Mn people, greater than the

population of Denmark, Finland and Ireland put together.

By 2014, the middle-high income band will consist of a substantial 11 Mn households. At

a median income of USD 22500, this segment represents a total income pool of nearly

USD 250 Bn. With spending patterns similar to the high income group; this segment

represents a very significant chunk of the consuming base.

• Four fold increase in households with annual income >Rs 12 Lakhs

• 3.4 Mn households in the highest annual income band (>Rs 24 Lakhs)

• 4 Mn reduction in low income households (Annual income< Rs 2.4 Lakhs)

2005-06 2013-14E

No of Households in Mn (2005-06 Prices)

Annual Income

>24 (>60)

12-24 ( 30-60)

6-12 (15-30)

2.4-6 (6-15)

<2.4 (<6)

Total

High

Middle High

Low

Income Level

Table 3: Income Pyramid

Middle Low

Rs. Lakhs

(USD ‘000s)

185.5

1.13.2

13.8

1.1

~205

181.3

4.9

11.4

35.4

3.4

~237

Source: NCAER, Tata Strategic

2005-06 2013-14E


Annual Income

>24 (>60)

12-24 ( 30-60)

6-12 (15-30)

2.4-6 (6-15)

<2.4 (<6)

Total

High

Middle High

Low

Income Level


Middle Low

Rs. Lakhs

(USD ‘000s)

185.5

1.13.2

13.8

1.1

~205

181.3

4.9

11.4

35.4

3.4

~237

2005-06 2013-14E


Annual Income

>24 (>60)

12-24 ( 30-60)

6-12 (15-30)

2.4-6 (6-15)

<2.4 (<6)

Total

High

Middle High

Low

Income Level


Middle Low

Rs. Lakhs

(USD ‘000s)

185.5

1.13.2

13.8

1.1

~205

181.3

4.9

11.4

35.4

3.4

~237

Source: NCAER, Tata Strategic



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A positive trend is seen in the middle-low band as well, where the number of households

is likely to increase from ~14 Mn in 2006 to over 35 Mn in 2014. While low income

households will remain the largest segment, their numbers are expected to decrease byabout 4 Mn (0.3% CAGR) in the same period. While these households are largely rural,

a substantial portion would be in urban India as well.

Increasing Relevance of Urban India

While public memory is constantly refreshed that India lives in villages, with urbanization

levels slated to cross 31% by 2016, the urban population will be ~400 Mn. Tamil Nadu

and Maharashtra with a population of 63 and 81 Mn respectively in 2001 are expected to

cross the 50% urbanization mark in 2007 and 2020 respectively.

• Urban population in India ~400 Mn (2016)

• Highly urbanized states have higher incomes and urbanize faster

• 75 cities with population greater than one million will contribute ~63% of India’s

urban population (2026)

• Urban NDP to contribute 61% of total NDP (2011)


2001 2016

Urbanized population as % of total population

0-20%

Low

> 35%

High

20%-35%

Medium

Tamil Nadu, Karnataka

Maharashtra, Gujarat

Haryana, Punjab, Delhi

Table 3: Changing Urbanization Map Of India


2001 2016

Urbanized population as % of total population

0-20%

Low

> 35%

High

20%-35%

Medium

Tamil Nadu, Karnataka

Maharashtra, Gujarat

Haryana, Punjab, Delhi

Table 3: Changing Urbanization Map Of India



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Urbanization trends across geographies indicate that states with high urbanization have

higher income levels and tend to urbanize faster than others. Thus, current high income-

high urbanization states like Delhi, Tamil Nadu, Karnataka, Punjab, Haryana,

Maharashtra and Gujarat assume greater importance for marketers in future (Table 5).

By 2026, the number of million plus cities is expected to increase from a current 35 to

75. The contribution of these 75 cities to the total urban population is likely to go up from

48% in 2001 to ~63% in 2026. Most likely their contribution to the total urban spend

would be much higher resulting in higher concentration of spending power.

Expected change in urbanization % (2001-2026)


Bihar

AP

HP

Orissa

Uttaranchal

Gujarat

Chhattisgarh

Karnataka Punjab

Haryana

A&N Isl.

Nagaland

West Bengal

Rajasthan

Jharkhand

Meghalaya

UP

MP

J & K

INDIA

Assam

Sikkim

0%

5%

10%

15%

20%

25%

30%

35%

40%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

100%

100%

Delhi

Note: (Urbanization: Expected change in urbanization) Manipur-26.7%:-2.4% Lakshwadeep-42..7%:-23.6% Daman & Diu-33.8:-18.3%

Tamil NaduMaharashtra

Kerala

U r b a n i z a t i o n % ( 2

0 0 1 )

Table 5: Current vs Projected Urbanization

Expected change in urbanization % (2001-2026)


Bihar

AP

HP

Orissa

Uttaranchal

Gujarat

Chhattisgarh

Karnataka Punjab

Haryana

A&N Isl.

Nagaland

West Bengal

Rajasthan

Jharkhand

Meghalaya

UP

MP

J & K

INDIA

Assam

Sikkim

0%

5%

10%

15%

20%

25%

30%

35%

40%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

100%

100%

Delhi

Note: (Urbanization: Expected change in urbanization) Manipur-26.7%:-2.4% Lakshwadeep-42..7%:-23.6% Daman & Diu-33.8:-18.3%

Tamil NaduMaharashtra

Kerala

U r b a n i z a t i o n % ( 2

0 0 1 )

Table 5: Current vs Projected Urbanization

46

52

57

61

1993-94 1999-00 2004-05 2010-11 U r b a n N D P a s % o f

T o t a l N D P

50%

Table 7:Ratio of Urban to Rural NDP

2.38

2.84

3.333.65

1993-94 1999-00 2004-05 2010-11

U r b a n t o R u r a l

P C I R a t i o

Table 6:Ratio of Urban to Rural PCI

Source: Analysis by Tata Strategic

46

52

57

61

1993-94 1999-00 2004-05 2010-11 U r b a n N D P a s % o f

T o t a l N D P

50%


2.38

2.84

3.333.65

1993-94 1999-00 2004-05 2010-11


P C I R a t i o


46

52

57

61

1993-94 1999-00 2004-05 2010-11 U r b a n N D P a s % o f

T o t a l N D P

50%

46

52

57

61

1993-94 1999-00 2004-05 2010-11 U r b a n N D P a s % o f

T o t a l N D P

50%


2.38

2.84

3.333.65

1993-94 1999-00 2004-05 2010-11


P C I R a t i o


Source: Analysis by Tata Strategic



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Incomes are slated to increase faster in urban India than in rural India. The ratio of per

capita incomes in urban to rural India is expected to go up from 3.3 in 2004-05 to 3.7 in

2010-11 (Table 6). Expectedly, share of urban India in the country’s net domesticproduct would go up from 52% in 2000 to over 60% in 2011 (Table 7).

Increasing Marginal Utility Of Time

Lack of time is fast becoming the basis for many consumer preferences in urban India.Smaller trends listed below are contributory factors to this shift in consumer behaviour.

Indians have been typically referred to as hard workers. This perception has been

strengthened by a recent study which revealed that Indian business leaders typically put

in the maximum number of working hours (57 hours) per week as compared to their

counterparts from 31 other countries.

The non-working time available to an urban Indian has been gradually eroded by the

increased travel time caused by the increase in traffic on the roads. Sales of two

wheelers and passenger cars put together have increased from 42 Lakhs in 2000-01 to

~70 Lakhs in 2004. With a less than proportionate increase in the length of roads, trafficon the road is bound to go up resulting in increased travel times.

Indian women traditionally stayed back at home to look after the kitchen and the

household. There has been a gradual but steady increase in the working urban women

in India. This has led to an increased realization of lack of time in double income

households in urban India. This need is more likely to be felt in the southern states of

Andhra Pradesh, Kerala, Karnataka and Tamil Nadu which have a higher urban working

women proportion of 16% as against a national average of less than 12%.

These factors contribute to the increase in marginal utility of time in urban India with

lesser number of hours available for the same or more number of tasks.

• Lack of time is increasingly shaping consumer preferences in urban India

• Rise in urban working women has amplified the trend



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Implications

To understand the implications of the above discussed trends, let us analyze their broad

impact on the food sector. While the projected economic prosperity is likely to reduce

share of food in overall consumption expenditure, processed food will take a bigger

share within the food pie. The increase in the population of the 15-59 years age group

will aid this shift towards processed food with increasing demand for convenience from

this consumer set.

While health and wellness food segments are likely gainers from the increase in the old

age segment, a projected decrease in the <14 years population might hinder the growth

story of companies in children focused food categories.

With distinct income groups emerging, companies will need to look at a differentiated

portfolio in order to leverage the increase in willingness to pay. The need for

differentiation can be better understood by taking the case of the drinking water

category. Some of the possible product offerings are tap water, bottled tap water,

mineral water, sparkling mineral water and enhanced water. While tap water satisfies the

basic need at the bottom of the income pyramid, enhanced water which is expensive

would be an apt offering for the sizeable high income group in India.

Also, companies might need to review their route-to-market to maximize efficiencies

while targeting these different income groups. For example, traditional retail outlets

catering to predominantly high income and low income households may require different

‘Route-To-Market’ approaches by companies.

With Indians expected to become ‘Time Poor–Money Rich’, product segments

answering the need for convenience are likely to exhibit higher growth. Urban India is

likely to spearhead these demand shifts with faster growing incomes and favourable

consumer preferences.

Throughout the 90s and the early part of this decade, marketers were taught that the key

to growth lay in increasing rural penetration. However, with greater urbanization and

faster increase in urban incomes, the urban consumer is gradually regaining centre

stage.

With such fundamental shifts taking place in their consumer base, companies in sectors

like food, financial products, healthcare, consumer durables, personal care, household

products and apparel need to revisit their strategies, else risk being caught off guard.

______________________________________________________________________

Tata Strategic Management Group. No part of it may be circulated or reproduced for distribution without prior written

approval from Tata Strategic Management Group.

Deciphering India's Demographic Puzzle

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