Middle class in India has arrived

The middle class in India has the sense that it is coming into its own; that it has acquired the numerical strength (300 million and more, if you use a fairly loose definition) to make the Indian market matter even in a global context; and to demand that their issues be addressed when elections come round.

The cacophony on television, the visible shift in focus of the general newspapers (out with coverage of city slums, in with coverage of shopping malls), the rush to start new airlines and the obvious international interest in India, all say the same thing: the middle class in India has arrived.

Didn't Indian airline companies account for close to half of all the new Airbuses ordered at the Paris air show? QED.

Is it that open and shut, or is there room for doubt? Looking at how the political system does not respond to the need for basics (like clean water and reliable power) would straightaway belie the claim that the middle class has political clout, but what of the other posers?

As always, the NCAER (or National Council of Applied Economic Research) survey of households gives us interesting answers to these vital questions.

It is a shock to discover, for instance, that despite the evident emergence of a strong middle class, barely 10 per cent of all households have life insurance cover--traditionally the first form of savings for anyone with a reliable income flow and with dependants.

And medical insurance is available for barely 1 per cent of all households!

There is worse to come. Only 2 per cent of households have credit cards (so much, then, for the vaunted advent of plastic money). Even that basic item in a middle-class household, the refrigerator, exists in only a sixth of all households in the country (probably because only a third of rural households have a domestic electric connection!).

It might be as much of a surprise to know that half of all the TV sets sold in the country are either black and white, or small (i.e. 14-inch) colour sets.

The only items of truly mass consumption remain daily consumables like cooking oil and washing and toilet soaps (which should really be classified as necessities, not options), followed some way behind by shampoos.

Among consumer durables, the ones used most often are not the stuff of contemporary middle class legend, and are either table/ceiling fans or bicycles. The first category sells about 37 million each year, the second about 25 million.

In other words, what appears a normal lifestyle to the average city youngster working in an office is completely abnormal for the majority, in both towns and cities (just as it is completely abnormal to speak and write in English -- only about 6 per cent do that).

From this, it is a short leap to yielding to the obvious appeal of CK Prahalad's thesis, that your "fortune lies at the bottom of the pyramid"; in other words, if you want to make big bucks in the Indian market, you had better serve customers with really low-cost goods and services.

Certainly, the evidence of the mobile phone industry and of cable TV bears this out; both expect their customers to pay no more than a few hundred rupees every month, for a fairy nominal cost, and they add enormously to the quality of life and to productivity.

The NCAER projections till the end of the decade do show, however, that for almost any category of product the market will double in terms of annual sales.

Some will do even better, while others will grow slowly. So most businesses can be said to have a good future if they can find their customers. That means more airports, more flights, many more cars. . . the full works.

That's because the size of the middle class itself will grow sharply in the coming years. But while there will be plenty of reason to celebrate the Indian party, the NCAER projections show that even in 2009-10 the middle class will be an island in a larger ocean of non-consuming classes.

Time we got a little impatient with the pace of change and economic reform?

BRIC may yield ground to CHIME

After having lavished attention on the BRIC (Goldman Sach's acronym for the emerging markets of Brazil, Russia, India, China) markets, global investors are now looking at a new alphabetical grouping, CHIME, symbolising China, India and Middle East.

Analysts believe that this geographical grouping — China and India's high growth and the fund flush Gulf region — holds the promise of tremendous growth in the years ahead.

According to a report in the Asian Venture Capital Journal, "The Middle East and Asia corridor is slowly becoming real and important. As Asia has become a lot more attractive today than the Western countries and the Gulf is an emerging market with a lot of liquidity."

Compared to the high-growth BRIC emerging markets, CHIME is developing as a far more geographically continuous and economically consistent proposition, the report noted.

This reverses the previously held view that the Mid East region continues to look for investment avenues outside.

Investors from the prosperous and high growth six-member Gulf Cooperation Council, or GCC, (comprising the UAE, Saudi Arabia, Kuwait, Oman, Qatar and Bahrain) have a different outlook and priorities to Western funds looking to diversify away from their own slow-growth economies.

The abundant liquidity of the GCC group means that investors may be more ready to explore new options and take risks and hence there could be an increasing look towards the east.

Another good year for urban India; what about rural Bharat?

If national security measures can get nearly Rs100,000 crore, surely we can afford to invest at least as much in securing our 'food security', argues Arun Firodia, chairman, Kinetic Group.

The current financial year has been a great one. GDP has grown by 9.2 per cent, government revenues are buoyant, and exports are up. Full credit should be given to the finance minister for the excellent economic management of the country. He seems to have decided not to touch the 'winning formula' and continued with his existing policies, more or less.It was expected that finance minister would chart out a revolutionary new path and transform the rural economy into a powerhouse of future economic growth. While there are many good schemes already operating in this sector, they have not succeeded in reaching the intended beneficiary stakeholders, because of a lack of sound implementation.

Unless delivery mechanism improves, these schemes would remain a drain on the exchequer.
Also the financial outlay on rural sector should have been at least Rs100,000 crore since the rural sector accounts for nearly 20 per cent of India's economy. But important areas like crop insurance will get only Rs100 crore and the National Rainfed Area Authority would get another measly Rs100 crore.

If national security measures can get nearly Rs100,000 crore surely we can afford to invest at least as much in securing our 'food security'. Instead of spending Rs43,000 crore to buyout the Reserve Bank of India's stake holding in the State Bank of India. The government could well have channeled this amount in creating asset like small irrigation, roads, cold storage, etc, in rural areas.Infrastructure sector of power, ports, roads, etc, cry out for immediate attention. But 80 per cent of this Budget will be spent on revenue expenditure with, a comparatively insufficient amount being allocated left for infrastructure creation.

There are some welcome incremental steps in the area of job creation, food processing, bio-energy, R&D, etc. It is also good to know that there will be further fiscal consolidation in the current year.

Urban India can look forward to another good year. But what about rural Bharat?