Three reasons to focus on India now
India, once again, has taken center-stage as the undisputed gem among emerging markets. While glimmers shine from faster-growing Bhutan and Myanmar, India is the world’s most dynamic large economy today, with GDP rising at 7.6% as per recent IMF figures.
Its current success vis-à-vis its BRICS peers stood out in stark relief this weekend at the eighth BRICS summit, which India chaired in Goa. Fellow attendees are either contracting (Brazil -3.3% and Russia -0.8%), enduring rocky recalibration (China, 6.6%) towards a “new normal” of consumer-driven rather than manufacturing-driven economic growth, or struggling to grow at all (South Africa, 0.1%).
Furthermore, other key macro-economic indicators look in better shape than ever in recent memory: India is running a current account deficit that is close to zero for the first time in a decade and holding inflation within the target band of 4-6%. Investors certainly like what they see: three-year FDI inflow CAGR stands at an impressive 22% and India has garnered the world’s largest share of greenfield investments.
Specifically for companies in the consumer and retail sector, India is the key opportunity to seize at this time, for the following three reasons:
1. The demographic dividend
The pleasant burden of being the world’s fastest growing economy is one that is widely distributed onto young and energetic shoulders; India (total population: 1.3 billion) has the world’s largest youth population.
In total, a striking 354.4 million people are aged between 15 and 29. Indeed, millennials make up 31% of India’s entire population and Gen Z, 32%. This surge in working-age population is functioning as a two-fold stimulus: keeping labour costs low – a boost for manufacturing and the service economy – and providing a growing pool of aspirational buyers for goods and services.
2. Urban acceleration, rural growth
More than 10 million people are migrating to India’s cities every year. For all the infrastructure challenges this poses, this is good news for India. Cities are “productivity engines” powered by high frequency interactions. They increase economies of scale and boost innovation. Their new, tech-savvy inhabitants are reshaping consumer demand and supporting the creation of a new retail landscape, including a booming e-commerce market. No country ever reached high income levels with low urbanization – and India’s cities will undoubtedly continue to be its primary growth engines.
The rural areas feeding this mass migration are also changing fast, however, and represent a much less tapped market. Rural electrification campaigns and financial inclusion initiatives are both priming the 700-million-strong rural market for growth. Over 180 million previously “unbanked” rural poor have entered the financial system in recent years, with micro lenders also now using sophisticated analytics and hand-held biometric systems to reach a new class of borrower.
3. It’s getting easier for businesses
The country has a long-standing reputation as a difficult place to do business, with endemic graft, a sclerotic bureaucracy and woeful infrastructure. The tide is starting to turn on these fronts as well: the country leaped 16 places in the World Economic Forum (WEF)’s Global Competitiveness Report this year to 39th – the greatest rise in the rankings by any nation. This follows similarly impressive progress last year and also comes on the back of a 12 point improvement in the World Bank’s ease of doing business ranking. Similarly, India progressed by 9 points on Transparency Internationals’ corruption perception index ranking in 2015 compared to 2014. The government is also planning to significantly liberalize its visa regime, has announced very ambitious infrastructure improvement projects and has moved forward on simplifying the local tax regime by implementing a GST regime. To say that there is more work to do here would be an understatement, but these are promising signs.
Depending on how long you have been in the world of business, this is probably the fifth or the tenth time you’re reading about India being an attractive economic opportunity. Is anything different this time? I believe two things are fundamentally different, and companies need to consider these carefully before jumping in.
A more sophisticated consumer
The consumer landscape in India today is much more complex than it ever was. There are high-income luxury and convenience-seeking consumers in the big metros, millions of aspiring youth with relatively less income in 500 smaller cities and hundreds of millions of new, low income consumers in 600,000 rural areas. In a recent conversation with the CEO of a consumer company in India, I asked him about his top challenge, expecting to hear the usual litany about infrastructure and rural distribution costs. Instead, I was surprised that he mentioned getting through to Gen Z and getting them on board with his brand message as his top challenge! The Indian consumer is maturing, and a more segmented and nuanced approach is called for to woo them today.
Stronger local competition
In the past decades, discussions on growth in the private sector in India have mostly focused on foreign players bringing new and innovative products to the market and luring the best of local talent. But this time, this is different, too. Local companies are moving more rapidly than multi-nationals to capitalize on a more attractive business environment. They are mining a strong and low-cost indigenous talent pool to bring locally relevant innovation to the market. This has helped make the country the second fastest growing service economy in the world. There is also a vibrant startup ecosystem to contend with, which is rapidly re-defining consumer expectations and attempting to disrupt the consumer and retail landscape. In another conversation with an Indian CEO, I was surprised to learn that his company is now working with local startups to implement salesforce effectiveness projects in rural India, which use advanced predictive algorithms to optimize the point of sale execution!
So while India represents an attractive economic opportunity, it would be a mistake to think of it only as a booming consumer market or a large talent pool. It is emerging just as much as a source of business innovation and disruption that by no means would remain limited to the borders of India. The world’s investors are coming for India; but India’s are also coming for the world!
