Baby's day out: And he has a mind of his own when it comes to what he wants

Jaeger Lecoultre's boutique in the Oberoi in New Delhi is a bit too modest for the aura that one of the world's most renowned luxury watch brands has around itself; at 500 square feet, the store is tiny and it has just around 50-60 timepieces on display against the 200-300 that one is used to seeing in the average watch shop in town. There aren't too many consumers flocking to Jaeger's store in the five-star hotel either. Yet, the low footfalls seem to be translating into business-in the last few months, the store has sold watches worth Rs 45-75 lakh. Gurinder Sahni, Managing Director, Jot Impex, Jaeger's sole distributors in India, claims there is more to what meets the eye. "These products are only for the rich and the worthy," says Sahni, adding: "India has a considerable number of them, and the number is only growing." Sahni is also setting up an exclusive boutique for Harry Winston-another supremely premium luxury jewellery and watches marketer that sells only 3,000 pieces a year to discerning global consumers (prices of products: Rs 2-4.5 crore).

Contrast those splurging hundreds of thousands of rupees on watches or jewellery or luxury brands of apparel or cars with just a decade back when many a multinational marketer, lured by dreams of selling to a burgeoning middle class, got into a tangle. One storied sport-shoes brand had projected selling five pairs of its then expensive shoes for every small 800 cc Maruti Suzuki car that Indian households bought, figuring that every car-owning household would like to buy its branded shoes for all its family members. With Maruti selling around 100,000 cars a year then, that would have meant 500,000 pairs of shoe sales. Needless to say, nothing like that happened and the shoemaker had to re-work its strategy for the Indian market. Indeed, back in the 1990s, the much-touted figure of 250-300 million middle class consumers did turn out to be more a mirage than a tangible market.

In high gear: Credit card culture and growth in consumer loans show that the new middle class is not hesitant to splurge

Cut to 2006 and things couldn't be more different. As testified by the rarefied atmosphere in Jaeger's tiny boutique to mushrooming malls teeming with branded products, today's Indian consumers are a different kettle of fish. Indian consumers-the very rich, the moderately rich and the middle class-have got a taste of luxury and the good life and, unlike their predecessors, they are not uncomfortable making the most of their new-found wealth.

Unarguably, the set of consumers that a Jaeger LeCoultre caters to is minuscule; of the total 1.1 billion population, only 8-10 million comprise India's richie rich with a household income in excess of $100,000 (Rs 45,00,000) a year. Yet, what is prompting marketers across the globe to pitch their tents in India is, one, the fact that even this is not a small number to cater to, and two, a new-found confidence that this group is only going to swell in the future. Indeed, close on the heels of this exclusive set is yet another band of some 50-60 million consumers, living mainly in the metros, whose average annual household income hovers between Rs 3 lakh and Rs 10 lakh and following them is a group of some 250 million consumers with an annual household income of around Rs 45,000-2 lakh; this group represents India's real middle class that mostly lives in the country's top 27 cities. Says Naresh Gupta, National Head (Account Planning), Grey Worldwide: "Our research shows that a majority of consumers in the metros are as global in their orientation as those at the top-end of the consumption cycle. They are exposed to the best global consumption culture and have no qualms about indulging themselves." Another report by the market research agency acNielsen says that the consumers living in towns beyond metros are also increasingly becoming open to the idea of consumption and a better lifestyle.

Put together, this set of people, which is loosely bunched together as the Indian middle class, has given immense fillip to the consumer culture in the country in the past two-to-three years. And marketers are hopeful that their enthusiasm will not abate in the future. "If the economy continues to grow at its current rate (India's GDP has grown over 6 per cent on average in the past one decade), and there is no reason why it should not, the breadth and the depth of the consuming class is only going to expand," says Rajeev Bakshi, the outgoing Chairman of PepsiCo India, adding: "The 50-60 million population of metros is going to double in the next five years and that, indeed, is a sizeable opportunity for most marketers across the globe." Agrees Rajan Mehra, Country Manager, eBay India: "Even with 100-150 million population, India will be a bigger market than Canada and Australia put together and hence, its attraction for marketers."

According to the National Council of Applied Economic Research (NCAER), India's middle class constituted less than 10 per cent of its population in mid-80s. Says R.K. Shukla, Senior Fellow, NCAER: "Indian middle class, in fact, has been growing for past several decades. But this rise could not be noticed because one, ground-level data on their status were never available and secondly, their purchasing power was kept on a leash by decades of socialistic planning and strict government control over production." But liberalisation changed the landscape of the Indian market. Thanks to increased level of industrialisation and the subsequent rise of services sector, opportunities for employment increased and income levels also went up. The result was that the size of middle class grew more than three times and today it comprises over 30 per cent of the total population, he adds.

If you have it, flaunt it: Be it department stores or street stalls, Indian consumers can't seem to get enough

Tomorrow is Another Day

Besides India's conservative economic policies in the pre-liberalisation era, Indian consumers' mindset also kept them from indulging in consumption. But over the past decade, along with a more liberalised economic policy, various transformations at the social level, like a younger population, which was financially independent at a much earlier age, the rise of nuclear families and an increased media exposure have given rise to a new consumption culture in the country. The past two-to-three years, in fact, have been stupendous as is obvious from the following: television penetration in 2005 stood at 50 per cent (of these, more than 60 per cent were cable and satellite connections) of the total population as against 35 per cent in 2000, refrigerator penetration was 12 per cent last year as against 9.4 per cent, and a total of 12 per cent of the population had telephone connections in 2005 as against 6.5 in 2000. Also, the average age of home owners during this period came down from 40 years to 28-30 years. Today, there are around 130 million mobile phone users and the internet population stands at 40 million. Credit card penetration is still quite low at around 2 per cent, but it has grown 10 times between 2001 and 2005.

Says Partha Duttagupta, CEO of the popular coffee chain, Barista: "Indian consumers were traditionally quite thrifty. A closed economy with limited opportunities for employment and, hence, the threat of an uncertain future as well as high interest rates pushed consumers towards higher savings." To be sure, the scenario is much different today as the current generation has grown in an open economy, where opportunities for employment and entrepreneurship are galore. "Today, 49 per cent of our guests are in the age group of 22-24 years. They don't mind paying a premium for a cup of coffee to unwind in a good ambience," he adds. Grey Worldwide's Gupta also points out that a recent research on young Indian consumers revealed that they were most assured about their future and well-being and not too apologetic about their indulgence and expenses.

A further boost to consumerism is the growth of the credit culture. True, the total number of issued credit cards (a primarily urban phenomenon) at 13 million (there are another 32 million or so debit cards) is a tiny number and average monthly spends on these cards is a low Rs 1,500 . Yet, the growth in consumer loans to finance purchases of homes, cars, two-wheelers and consumer durables is nothing to sneer at. Today, the figure for outstanding home loans stands at a whopping Rs 1,79,116 crore and for outstanding personal loans at Rs 1,96,623 crore. The new middle class Indian consumer, while still not mired in the credit trap that many of his counterparts in the developed economies find themselves in, is not shying away from consuming today for what he'll have to pay tomorrow.

The good news for marketers is that the consumerist trend will likely continue in the coming years. Given the robust growth of the economy and a positive socio-economic environment, the next 10-15 years will probably see a further boost to the consumerist culture. Strategic consultant Gurcharan Das, the author of India Unbound, thinks that if the economy grows over 7 per cent annually in the foreseeable future and the population increases by 1.5 per cent and literacy rate keeps rising, then half of India will turn middle class between 2020 and 2040. He says that if these milestones are achieved, India's individual purchasing power will climb from $2,149 (Rs 92,407) in 1999 to $5,653 (Rs 2,543,85) per person in 2020 and to $16,500 (Rs 7,42,500) in 2040.

What will fuel this growth is a young and growing population. According to estimates, around 720 million people comprising over 60 per cent of the country's total population will be in the age group of 15-54 years by 2010 compared to 58 per cent last year. Then, per capita incomes are also likely to rise, courtesy the fast growing services sector, which currently contributes around 40 per cent to the country's GDP. Industrial growth is also likely to accelerate, thereby, opening new vistas for employment.

Poor Still, So What?

What is interesting in the story of India's emergence as a consumer market is that except for the political class, not many sections whine about its destitute who, even now, form a sizeable chunk of its population. According to T.K. Bhaumik, Chief Economist, Reliance Industries, some 200 million people in India are still poor (subsisting on an income of $1-2 per day) and an equal number lives below the poverty line, besides some 400 million who belong to the lower middle income group (annual household incomes of less than Rs 90,000). There is large-scale optimism that if India can sustain its average growth rate of 6 per cent of the last 8-10 years, these sections will gradually move up the socio-economic chain. Says Parth J. Shah, President, Centre for Civil Society: "It is not right to argue that while rich are getting richer, the poor are becoming poorer. This is happening because the sectors in which a majority of the middle class is employed are growing faster than the deprived section that is still dependent on agriculture, which is growing only at 2-3 per cent every year."

Both Bhaumik and Shah maintain that as sectors like manufacturing develop and people move away from agriculture to seek their livelihood from industry and services, their economic levels will only improve and they will eventually add to the middle class. In fact, Adil Zainulbhai of McKinsey (his column A Vision for India in 2020: Freer, Better, Bigger appears on page 226), says that "harnessing the full potential of India's rural economy alone can accelerate consumption from present levels to $500-650 billion by 2020".

For marketers who have been chasing the ephemeral Great Indian Middle Class, that is the hope to look forward to.

-additional reporting by Aman Malik