Increased Credit Friendliness

There is a radical change in the Indian consumers’ mindset regarding credit. There has been a dramatic shift in terms of how a consumer defines capital expenditure and revenue expenditure. Many capital expenditures, i.e. money spent on buying a house, vehicle, jewelry or consumer durables has transformed into consumer revenue expenditure because of the easy availability of finance. Car loan and loan credit purchases also get added in this revenue expenditure category. In 1995, just 2.6 million urban households in India could afford a mortgage. After eight years of rapid economic expansion, that number had rocketed to 20.5 million – a compounded annual growth rate of 29.4 per cent.

The credit card market in India has itself expanded significantly in terms of new geographies and new segments. As compared to the global credit card market, however, India still has a long way to go. As of March 31, 2006 the total number of debit and credit cards issued in India was estimated to be around 47 million and 18 million respectively. Indians withdrew nearly US$ 50 billion using credit cards from ATMs in 2005. This includes US$ 326 billion through Visa credit cards alone. As on March 31, 2006, Visa saw a 36 per cent growth in the number of cards issued, making India the third biggest card market for Visa, after Japan and Korea. Credit cards are a means of spending or for that matters, increased spending and this augers well for the development of modern trade.

Geographical Dispersion of market potential:

There is considerable variance in economic prosperity levels among various Indian states, which linked to the overall wealth creation from agriculture, trade and industrial development. Accordingly, there are affluent and poor districts in most states, classified according to their market potential. At a national level, India has 500 active districts (excluding Jammu and Kashmir) of which the top 150 districts (Class A) account for 78%, while the next 150 (Class B) account for 15% of the national market potential for a wide category of goods. The remaining 200 districts (Class C), which have 40% of the geographical share, are backward and account for only 7% of India’s market potential. The spread of, affluent and non-affluent districts is uniform in all the four regions. However, the Eastern, Northeastern and Central regions of India have the largest share of backward districts.

Urbanization has increased at a rate of 2.7 per cent over the last 10 years (1990 – 2000). In 2000, the urban population was estimated to be 281 million (27.7 per cent of the total population).This pace of urbanization is expected to be maintained, and urbanization is expected to increase at 2.4 per cent from 2000 to 2015. While the effects of urbanization are visible in many parts of India, rural India is also moving rapidly from poverty to prosperity. The Census of India defines rural as any habitation where the density of population is less tan 400 per sq. km and where at least 75 per cent of the male population is engaged in agriculture and where there isn’t any municipality or board. Going by this definition, of the 600,000 villages in India, 15,000 have a population below 5,000.

Taking into considerations the size of the rural population and the increase in the incomes at all levels, the rural market is definitely an opportunity for modern trade.

From table it can be concluded that out of every rupee that the average rural Indian spent in 2004-05 on household consumptions, 55 paise was spent on food, of which 18 paise was spent on cereals, 8 paise on milk and milk products, 6 paise on vegetables, 5 paise on sugar, salt and spices, and 5 paise on beverages, refreshments, processed food and purchased cooked meals.

The average rural Indian also spent 10 paise (out of every rupee spent on consumption) in fuel for cooking and lighting, 5 paise on clothing and footwear, 3 paise on education, 7 paise on medical expenses, 4 paise on conveyance, another 4 paise on all other consumer services, and 3 paise on consumer durables. Thus, the pattern of consumption in rural and urban India varies across broad product categories, and while levels of consumption for certain products may be lower in rural as compared to urban areas, the fact does emerge that a significant market for the same exits, which again is an opportunity to be tapped.

With multiple rivers for the consumption boom, India has become an attractive market for foreign investors and organizations. As a country of enormous economic and social contrasts, India offers a complex marketing arena and demands high specificity in the assessment of its market opportunities for various classes of goods. India’s complexity goes beyond sheer numbers: its one billion people inhabit four climatic zones from the temperate north to the tropical south, from the parched west to the inundated east; speak one or more of at least 15 official languages: follow several religious an personal beliefs; differ enormously in their food habits and social customs; and live together under varying states of human development, from, the highly affluent to the utterly destitute.

Besides internal contrasts, India is culturally different from several other markets, including Asian markets, for historical and social reasons. Consumer goods marketers find India a very unique market that may defy replication of strategies used successfully in other emerging markets, and must be dealt on its own terms.

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