By Abhishek Sharman
India’s consumption story has been impressive over the last decade. As the world’s now most populous country and one of the fastest-growing large economies, India’s consumption market stands out as an attractive destination. India is a consumption-driven economy, as reflected by the 60% contribution by private consumption in the GDP. Despite facing some challenges due to the disruptions by COVID-19 and the increasing interest rates in recent times, India’s consumption story remains one of the most compelling narratives in the global investing landscape.
The key reason for India’s success is its demography. This is where India has a distinct advantage over other Asian economies. China, while large has an aging working population, and other economies (for example Indonesia & Bangladesh) while promising, are much smaller than India. The Indian market is characterized by a young, large, and aspirational population that is increasingly becoming consumption-oriented, with the country’s private consumption expenditure expected to grow at a CAGR of 8.3% from 2021 to 2026, reaching $3.6 trillion. The median age in India is just 29, making it one of the youngest countries in the world. The size of the youth and the promise of growth from the current base for decades to come, makes India stand out as a truly promising investment opportunity like no other.
Moreover, the country is reducing poverty at a rate rarely seen; Between 2005 and 2021, 415 million people have escaped poverty as acknowledged by the UN. On the other hand, the Indian middle class is rapidly expanding and seeking to consume more variety and quantity. According to the World Economic Forum, nearly 80% of households in 2030 will be middle-income, increasing from roughly 50% in 2019. As approximately 140 million households move into the middle class and another 20 million move into the high-income bracket by 2030. The consumption of essential categories like food, beverages, apparel, personal care, gadgets, transport, and housing is expected to more than double and the spending on services categories such as healthcare, education, entertainment, and household care is expected to more than triple.
Parallel to the Western world, India’s growing middle class is similar to the baby boomer generation in the US. The rise of the baby boomer generation in the US in the 1950s and 1960s led to a massive increase in consumption. This trend is repeating in India, with the GDP per capita recently crossing USD 2000. As GDP per capita grows, so too does India’s spending power. Historically, India has been a high-savings rate economy, with savings rates exceeding 30%. However, in recent years, households are consuming more and saving less. This is witnessed across several markets. For example, the FMCG market in India grew by 7.3% in 2020, despite the pandemic; the online food delivery market in India grew at a CAGR of 25% from $4 billion in 2019 to $7 billion in 2020; the Indian smartphone market grew by 23% YoY in Q1 2021, with a total of 38 million units shipped; the Indian e-commerce market is expected to grow at a CAGR of 21.8% between 2020 and 2025, reaching $118 billion by 2025; And even the automotive industry recorded its highest ever annual domestic passenger vehicle sales in 2022, with a total of 37.93 lakh units being sold, 23.1% higher than the preceding year.
This is catalyzed by India going through the nuclear family revolution, where the joint family is giving way to siblings living separately and thus needing ~1.7x of what they would have earlier in the joint family structure. The demand for discretionary brands and services which are growing from a small base and at a very fast rate, presents one of the most compelling investment opportunities in India.
While some consumer and service categories have happened in India, many have not. For example, if you look at paints as a category, India is home to the 2nd most valuable paint company in the world, Asian Paints ($37 billion). However, when we look at women’s shoes as a category, India does not even have a $100 million brand. Another such example is Jubilant Foodworks, which has the market for Dominos franchises in India is the most valuable franchise of Dominos, valued at $4 billion, but we do not have a single unicorn (a company valued at over $1 billion) focused on the Indian cuisine. Many of these discretionary categories already have a large consumption market, however, they are characterized by small mom-and-pop franchises. These categories are ripe for the creation of consumer brands or organized service players. Along with this, the consumption growth drivers in India provide a compelling investment opportunity for patient capital that can help entrepreneurs build and transform their businesses. The next decade belongs to India and Indian consumption.
(Abhishek Sharman is Founder & MD at Carpediem Capital. Views expressed are author’s own.)