Deciphering India’s Demographic Puzzle: A Consumer ...

1 Page 1 of 6 STRATEGIC MANAGEMENT GROUPSTRATEGIC MANAGEMENT GROUPD eciphering 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 are important 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.

2 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.

3 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 in 2006 to 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 , Maharashtra, Bihar, Rajasthan and contribute to >50% of the addition in working age(15-59 years) population <14 years27%15-59 years64%>60 years9%>60 years8%<14 years32%15-59 years60%20062016 Table 2: Shifting Age Mix Proportion (Percentage)66981183118~356~34020062016 Table 1:Shifting Age Mix (Mn Persons)<14 years15-59 years>60 years11081269 Source.

4 Population Projections 2001-2026 (Census Commissioner), Analysis by Tata Strategic<14 years27%15-59 years64%>60 years9%>60 years8%<14 years32%15-59 years60%20062016 Table 2: Shifting Age Mix Proportion (Percentage)66981183118~356~34020062016 Table 1:Shifting Age Mix (Mn Persons)<14 years15-59 years>60 years11081269<14 years27%15-59 years64%>60 years9%>60 years8%<14 years32%15-59 years60%20062016 Table 2: Shifting Age Mix Proportion (Percentage)66981183118~356~34020062016 Table 1:Shifting Age Mix (Mn Persons)<14 years15-59 years>60 years11081269 Source: Population Projections 2001-2026 (Census Commissioner), Analysis by Tata Strategic Page 2 of 6 STRATEGIC MANAGEMENT GROUPSTRATEGIC MANAGEMENT GROUPIn 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.

5 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.

6 Within this band, there are 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.

7 Four fold increase in households with annual income >Rs 12 Lakhs Mn households in the highest annual income band (>Rs 24 Lakhs) 4 Mn reduction in low income households (Annual income< Rs Lakhs) 2005-062013-14 ENo of Households in Mn (2005-06 Prices)Annual Income >24 (>60)12-24 ( 30-60)6-12 (15-30) (6-15)< (<6)TotalHighMiddle HighLowIncome LevelTable 3: Income PyramidMiddle LowRs. Lakhs(USD 000s) ~ ~237 Source: NCAER, Tata Strategic2005-062013-14 ENo of Households in Mn (2005-06 Prices)Annual Income >24 (>60)12-24 ( 30-60)6-12 (15-30) (6-15)< (<6)TotalHighMiddle HighLowIncome LevelTable 3: Income PyramidMiddle LowRs.

8 Lakhs(USD 000s) ~ ~2372005-062013-14 ENo of Households in Mn (2005-06 Prices)Annual Income >24 (>60)12-24 ( 30-60)6-12 (15-30) (6-15)< (<6)TotalHighMiddle HighLowIncome LevelTable 3: Income PyramidMiddle LowRs. Lakhs(USD 000s) ~ ~237 Source: NCAER, Tata Strategic Page 3 of 6 STRATEGIC MANAGEMENT GROUPSTRATEGIC MANAGEMENT GROUP 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 by about 4 Mn ( CAGR) in the same period.

9 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) Source: Population Projections 2001-2026 (Census Commissioner), Analysis by Tata Strategic20012016 Urbanized population as % of total population0-20%Low> 35%High20%-35%MediumTamil Nadu, KarnatakaMaharashtra, GujaratHaryana, Punjab, DelhiTable 3.

10 Changing Urbanization Map Of IndiaSource: Population Projections 2001-2026 (Census Commissioner), Analysis by Tata Strategic20012016 Urbanized population as % of total population0-20%Low> 35%High20%-35%MediumTamil Nadu, KarnatakaMaharashtra, GujaratHaryana, Punjab, DelhiTable 3: Changing Urbanization Map Of india Page 4 of 6 STRATEGIC MANAGEMENT GROUPSTRATEGIC MANAGEMENT GROUP 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).