Thursday, 31 March 2016

'Working population will drive India's consumption'

It is in contrast to the US where 60-plus age segment is the biggest spender

As much as 70 per cent of the consumption growth in India in the next 15 years will come from the working population(people aged 15-59 years), according to a new McKinsey & Company study. The study also finds consumption by the 60-plus age segment will grow at less than 10 per cent per annum.

This is in contrast to the US, where the firm has found the elderly to be the biggest spenders. People in this age group bought nearly two-thirds of new cars sold in 2011, cites the report 'Urban World: The Global Consumers to Watch'.

"Emerging demographics are the new emerging markets: The question is no longer where to search the globe for growth, but which demographic groups have the most spending power," it says.
  • 70% growth to come from population aged between 15 and 59
  • 79% growth through rise in per capita consumption
  • Growth to be centred in Mumbai, Delhi, Ahmedabad, Hyderabad and Bengaluru
  • Urban population growth will be moderate at 2.2%

It further predicts 79 per cent of growth in the next 15 years in India will come from increased per-capita consumption. The study says urban population growth in the country will be moderate at 2.2 per cent and consumption growth will be concentrated in Mumbai, Delhi, Ahmedabad, Hyderabad and Bengaluru.

"The demographic profile of Indian cities is diverse and aging will affect specific cities more than others: All cities in India are aging, particularly those in Kerala," said the report.

While all age segments are increasing in population, older age segments are growing faster. Sixty-plus populations are expanding at four per cent compounded annual growth rate (CAGR) and under-30 population at 1.5 per cent CAGR.

This means, companies will need to factor in shifting urban demographics while evolving their footprint. "Knowing which cities, and even which neighbourhoods within cities are home to key consumers will matter," said the report. It says companies will also have to tailor products and services for an increasingly diverse consumer market.

It also emphasises the growing importance of services. In Mexico and India where incomes are relatively low, the average share of household income devoted to services-dominant categories is only 19 per cent and 13 percent, respectively.

Talking about the global trend, it says nine groups of urban consumers are projected to generate three-quarters of global urban consumption growth of about $23 trillion in the next 15 years. And, only three groups are expected to contribute about half of this urban consumption by 2030. These include developed retiring and elderly (60-plus years in developed regions); China's working-age consumers; and North America's working-age consumers.

The study notes that demographic variations among cities - and therefore their growth and consumption prospects - are already large. In its sample of cities, the average age ranged from 22 years in India's Shillong to 48 years in Punta Gorda in the US state of Florida.

This has clear relation to services such as healthcare spending, which accounts for 10 per cent of GDP in Organisation for Economic Co-operation and Development countries, and an average of six per cent of GDP in Brazil, China, India, and Russia.

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