The Inorbit shopping centre in the northern suburbs of Bombay is like any you
would find in the developed world. Teenagers in the latest fashions hang out
on benches, swapping ring tones on their mobile phones and swigging soft
drinks from cans. Parents nervously watch their children charge around in
the play area while they sip frothy lattes before being dragged off to check
out the latest must-have toy.
Three floors, topped by a multiplex cinema, offer a range of familiar western
brands – Marks & Spencer, Guess, Wrangler, Mothercare – mixed in
with local names such as Crossword and Shoppers’ Stop. It is a bustling,
air-conditioned bubble of commerce. The difference for these shoppers
compared with their peers beyond the Third World, however, is the sheer
novelty of the experience. Even five years ago, nothing like this existed in
India.
White-haired old ladies, wearing traditional saris, straddle the divide
between this new retail world and the old one dominated by small
family-owned shops – often little more than a hole in the wall – and
open-air markets where goats and cattle wander between the stalls. Guzzling
milkshakes in the modern food court alongside denim-clad grandchildren
stuffing burgers into their mouths, India’s elder generation seems happy to
have made the transition.
All around them, the US mall culture is being embraced. The largest queue in
the eating area is not for the traditional Indian fare of dhosas and vada pav,
but for Pizza Hut.
“It is totally different from five or ten years ago when you had to go to
shopping lanes or exclusive showrooms because there was no other option,”
Mukesh Agrawal, 25, a management student, says.
Wearing a Reebok shirt and trainers, Agrawal says he visits a shopping centre
once or twice a week to hang out with friends or buy the latest sports
brands. “Most of the western brands are affordable,” he says. “People are
becoming more stylish and coming closer to the concept of marketing.”
India is undergoing a retail revolution. Spurred by a new brand of
consumerism, social classes are being invented with each glass-fronted
shopping centre that opens. An unprecedented generation of wealth, spurred
by annual economic growth of more than 9 per cent a year, is rapidly moving
millions of people up the standard-of-living ladder.
The result is an irreversible social and economic change that many believe
will turn India, despite all its problems of poverty, religious friction and
neglected infrastructure, into one of the next global superpowers. “There is
a tipping point when you reach a certain per-capita GDP – like a hockey
stick effect. We are not there yet. China is,” says Anand Mahindra, one of
India’s foremost industrialists. “But we’re getting close. If we have two
more years of 9 per cent growth, we are there.” Untapped potential is the
reason foreigners are itching to break into India, ranked for the past three
years as the most attractive investment opportunity for mass-market and food
retailers, according to the annual Global Retail Development Index from
consultants A.T. Kearney.
“What is happening in retail in India is quite unprecedented in the world,”
Paul Merrifield, national shopping centre development manager for Aditya
Birla, one of India’s top conglomerates, says. “The huge population base,
combined with heady economic growth, seemingly insatiable aspirations, youth
and a lack of existing shopping centre in-frastructure, can only create a
unique and enormous potential.”
It is still a highly regulated environment, however, in an effort to protect
the small shop owner and domestic players. Only single-brand foreign
retailers are allowed to operate in India, which explains why Calvin Klein,
Guess and Mothercare are common sights. For the moment at least, multibrand
operators such as Tesco and Wal-Mart must partner an Indian company.
Wal-Mart, the world’s biggest retailer, will enter the market next year
through a joint venture with Bharti Enterprises, a conglomerate that owns
India’s leading mobile phone network. The US giant, like all foreign
companies, has been dazzled by India’s numbers. The most frequently quoted
figure that sparks murmurs of excitement in the international investment
community is the size of the country’s new middle class: 250 million – more
than four times the population of the UK.
The consensus in India, which has a population of 1.1 billion, is that this is
not an overstatement. “There are clearly 50 million households which are
truly to my mind middle-class and there are about five members per family,
so it’s a reliable number,” Sunil Bharti Mittal, Bharti chairman and a
self-made multi-billionaire from Punjab, says.
“I’d say 25 million people are as far in terms of wealth as Europe. And 25
million is a nation in Europe. So you have one big European nation here
consuming Louis Vuitton and Chanel and certainly 250 million people
consuming more than the basic staple goods. The range is big.”
McKinsey, the consultants, predicts that by 2025 India will be the world’s
fifth largest consuming nation, surpassing Germany, with consumption rising
fourfold to 70 trillion Indian rupees. Average real household disposable
income will grow from 113,744 rupees in 2005 to 318,896 rupees, according to
the firm.
“Growth is driven by volume in India. On a per capita basis, it is still very
modest by developed countries’ standards. But when you look at the
fundamentals, we see dramatic changes ahead,” Eric Beinhocker, senior fellow
at the McKinsey Global Institute, says.
India’s next spurt of growth will be driven by its deep pool of young talent.
More than half the population is under 25. Its collection of 14 million
young professionals – twice the number in both China and the US – is topped
up each year by two and a half million graduates.
With a severe talent supply crunch in a booming economy, the best have their
pick of jobs. It is not unusual for young executives to have had five jobs
in the three to four years since leaving university. And they are applying
the same short-term thinking to their consuming habits.
“The Indian consumer is very young and evolving very fast,” Prashant Desai,
head of new ventures for Pantaloon Retail, India’s leading retailer, says.
The trend is creating a new fast-living culture at odds with the staunchly
conservative values of Indian society. Old Indians buried their rupees in
watertight containers; new Indians are putting them into yachts.
“A lot of people have made money and they want the lifestyle, so they are
spending. It’s a statement, saying: I have arrived’,” says Gautam Singhania,
managing director of Raymond, India’s best-known tailor, who himself is not
averse to flashing the cash – commuting in his helicopter and throwing
parties on his tri-deck luxury yacht. “The younger generation is standing on
its own two feet, not just taking pocket money until they get married. They
are earning their own. They travel, need clothes and can buy a house and a
car against their income. They want to do better than their parents did.”
Like many Indian industrialists, Singhania believes the real societal shifts
in India over the next few years will happen in the second-and third-tier
cities. The big metropolises such as Delhi and Bombay are already well
advanced – saturated some might say – to the point where top-level salaries
and living costs are on a par with the developed world.
“The small cities are where there will be the biggest changes, because the
market has been neglected for so long. There is pent-up demand,” he says.
“We recently opened a 10,000 sq ft store in Andheri (a Bombay surburb) and
had sales of 150,000 rupees on day one. A 2,500 sq ft store in eastern India
had opening day sales of 250,000 rupees. I know someone who went into a
Rolls-Royce showroom and bought one on impulse on his way to buy a $250,000
stereo system. And he came from Indore [a city in central India famous for
its forts, palaces and textiles].”
Middle-income Indians in mid-sized cities have been unleashed not only by
rising salaries and a strong rupee but the advent of consumer credit. “If
you were here in 2000, you would have seen very different consumer
behaviour,” V. Vaidyanathan, head of retail business at ICICI Bank, India’s
largest loan provider, says. “There was less willingness and propensity to
consume. Loans were available only to the upper economic segment and the
average consumer did not have the confidence to borrow. Things have changed.
“Now people can see their own cashflow and [borrowing] has become easy.
Finance companies are rushing to give money.” India is already Visa’s
largest market for debit cards in Asia, with 34 million customers last year.
Barclaycard this year launched three credit cards in India.
“There is an emerging middle class [who are borrowing] in a country where
people have a stable income stream and want to buy big-ticket items and
spread their payments,” Anthony Jenkins, Barclaycard chief executive, says.
“Credit cards always start off as a high-end product. We are clearly past
that stage in India. We are starting to see mass-market growth.” The upside
is huge. India, as a country, is still hugely underleveraged: borrowings
account for only about 10 per cent of GDP, compared with 35 per cent in
southeast Asian countries. The average loan value in India is just one
seventh of that in the developed world. Most of India’s 600 million-strong
rural population does not even have a bank account.
But the changes afoot are tangible. India, traditionally a nation of savers,
is becoming a nation of spenders. The best indicator is the mobile phone
market, the fastest-growing in the world with six million new subscribers a
month. There are estimated to be 165 million in the country today and this
number is projected to grow to between 500 million and 600 million by 2011,
as first-time phone owners skip the fixed-line step to communication.
Mobile phones are not the preserve of the rich. Taxi drivers, maids,
fruit-sellers and street hawkers all have them, lured by local tariffs of
one rupee a minute and handsets costing as little as £20.
“We are seeing India transforming and it feels good to be part of it. The real
take-off has happened in the last four or five years. India is creating more
jobs and that’s created a larger middle class,” Uday Kotak, managing
director of Kotak Mahindra, India’s third-largest commercial bank, says.
By 2010, there will be 580 million consumers in the key 15 to 44 age bracket
in India, according to CLSA, the brokers. China will have 665 million. The
test for India, a messy democracy versus a neat, capitalist autocracy, is to
make sure a large proportion of the 600 million people still dependent on
agriculture for a living are also invited along for the ride. “That is one
of the biggest challenges for India – to ensure more inclusive growth,”
Kotak says. “If we can create jobs, it will be.”
The prosperity of mid-tier cities, which act as a bridge to rural India, is
key. Without a fairer distribution of India’s new-found wealth, the rich
will only get richer and an explosion of social tension lies ahead as the
poor are left outside the doors of plush department stores, resentfully
eyeing the goodies in the arms of their luckier compatriots.
A holiday paradise
— Historian Michael Woods on his 20-year love affair with India
— Experts’ choice of top hotels
— Where to find the best curries
— How to meet a maharajah
— Ganges whitewater rafting
— Dance like a Bollywood star
