India’s economy: The new pearl of the east
It’s the world’s oldest continuous civilization and the second largest country in the world by population – and we’re not talking about China. India has emerged as the country with the fastest growing economy in the world, with a steady GDP growth of around 7% over the last couple of years. The Indian economy does not show any signs of declining.
Over 291 million people are going to be catapulted into India’s ever-growing middle class, which will skyrocket to an estimated 538 million, according to consultancy firm McKinsey. That’s more than the population of the United States and Russia combined. Another 23 million – almost the entire population of Australia – will number among the country’s most wealthy citizens. If you’re a business owner looking to expand abroad, this should make your heart skip a beat.
If the Indian economy continues on its current growth path, income levels will almost triple, making it the fifth-largest consumer market in the world. In absolute value, the fashion retail market in India was worth €52 billion in 2017 and is predicted to grow to €85 billion by 2022. Imagine having a market that size to your disposal. Such an explosive economic boom will result in a drastic change of consumer spending patterns and a disruption of the Indian retail landscape.
From surviving to thriving
With the current low per capita incomes, it is no surprise that food and groceries account for the largest share of consumer spending (66.7%), followed by clothing (9.1%) and jewelry (7.7%). Indian spending patterns will evolve, just like its residents’ incomes. With basic necessities such as food and groceries declining in relevant importance, and secondary necessities such as apparel, home and healthcare growing in priority. The result of a large group of Indians, moving from surviving to thriving.
When it comes to retail channels, India is certainly unique. Independent, family-owned stores continue to dominate the landscape, with over 18 million such outlets spread across around 5,500 towns and 600,000 villages. Modern brick-and-mortar retail accounts for just 8% of the total retail by share of channel, and e-tail merely 2.3%.
What’s more, India’s rapidly growing number of internet-users means reaching consumers has never been easier; in September 2018, India’s Telecom Regulatory Authority reported just over 500 million internet-users. This is an unfathomably large group of people, yet it’s only around a third of the population, meaning even more room for even more growth.
“Every time you look at India through the Chinese lens you will not see the opportunity correctly. India is a whole different ball game. In India, it’s not about the rich; they shop all over the world. It’s about the 999 others who are the customers of tomorrow.”Darshan Mehta, President & CEO of Reliance Brands
More people – more challenges
Of course, a large population also comes with undeniable challenges. It’s very important to recognize the heterogeneity of the Indian consumer population. With 1.3 billion inhabitants, 22 languages and over seven religions, communication and advertising need to be understood by everyone to prevent offense and miscommunication. When it comes to colors, prints, designs and styles, the norms are different in India compared to Europe or Hong Kong. Traditional clothing, for example, is still very much the go-to for Indian women throughout the country.
Factors outside of the control of consumers, such as infrastructure and corruption, can also prove to be great challenges. For instance, in 2016, nearly 40% of India’s road network was unpaved. But change is coming; the Indian government aims to invest $777.73 billion in infrastructure by 2022, in order to create sustainable development in the country. This will make last-mile delivery much more efficient in the future.
When it comes to corruption, however, India has a lot of work to do. The country currently ranks 81st out of 180 on the Corruption Perception Index. China holds the 77th spot. This means that investors and executives should be wary of difficult negotiations. Studies have shown, however, that economic growth has a positive effect on corruption.
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Upwards and onwards
Success stories of brands introducing themselves to the Indian market are proof that these obstacles do not have to be challenging at all. Zara has been in India since 2010 and has proven to be profitable from the start; in 2017, the company posted a revenue of $8.4 billion. H&M, in their first year in India, saw a revenue of $4.5 billion. Evidently, Indian consumers are ready for large European retailers.
There are a couple of ways you could infiltrate the Indian retail market. Depending on the level of awareness of your venture or brand, and your personal knowledge of the local market, you could opt for partnering with existing e-commerce platforms or enter the market with a franchise model. Big players with an in-depth understanding of the market could go in and create fully operational stores.
India is working hard to innovate itself, in order to attract foreign and domestic investors. Mr. Narendra Modi, Prime Minister of India, has launched the ‘Make in India’ initiative with an aim to boost the manufacturing sector of the Indian economy, thus increasing the purchasing power of an average Indian consumer – which would further boost demand, drive development, and benefit investors. Through this initiative, the Government of India aims to take this sector up to 25% of the GDP from the current 17. As well as this, with the government’s ‘Digital India’ initiative, which focuses on three core components – creating digital infrastructure, delivering services digitally and increasing digital literacy – the future is looking bright for the new Pearl of the East and its investors.