Drivers of Retail change in India

We are witness to the change happening in retail in the country. The local grocery shop has gradually transformed himself into a small supermarket. The transformation of what used to be known as Phoenix Mills, into High Street Phoenix is a reality. This change is not restricted to the metro cities but has rapidly spread to smaller cities and towns as well. The person driving this change is the Indian consumer. In this article we look into the reasons of the retail change in India.

The size of the population in India has always made it a large market. However, from the 1950’s to the 80’s investments in various industries was limited due to the low purchasing power in the hands of the consumer and the government’s policies favoring the small scale sector. Initial steps towards liberalization were taken in the period of 1985 – 90. The late Prime Minister PV Narasimha Rao and the finance minister, Manmohan Singh are credited with having ushered in the first level. It was at this time that many restrictions on private companies were lifted, and in the 1990’s the economy slowly progressed from being state led to becoming ‘market friendly’.

Socio Economic Factors:

Socio-economic factors are seen as fundamental to development. India is today a nation which has a large middle class, a youth population which is happy spending and a steady rate of growth of GDP.

The primary indicator of socio-economic change is the increase in life expectancy from 58 years in the year 1991-92 to an average of 66 years in 2006-07. India aims to achieve 100% literacy (15 – 35 age groups) by the year 2006-07. Basic amenities like drinking water and electricity are also likely to be commonly available. Thus we can say that there is a definite improvement in the basic quality of life of an average Indian citizen. With the basic necessities being taken care of, there is, a good chance that the demand for other products and services may increase.

Changing Income Profiles:

Steady economic growth has fuelled the increase in personal income in India. The middle class forms, the backbone of the India market story and it is the rising incomes in the young middle class population that is fuelling its growth. The definitions of income classes vary from one study to another. For the purpose of this article, the income classification done by NCAER is considered. According to the NCAER data, the middle income and the upper middle income categories are likely to witness the most significant expansion in the coming decade. The upper and middle class are likely to increase their share in the population from 19.6% in 1995-96 to 42.6% in 2009-10, a substantial increase, while the middle income category to witness an increase from 32.9% to 39.8% in the same period.

Not only does the population determine the volume of the market, but the relative size of the different income segments as well. The building up of the Indian middle class and the higher income echelons will provide a demand for niche and branded products.

The disposable income of Indian consumers has increased steadily. The proportion of the major consuming class (population that has an annual income that is higher than Rs 90,000 has risen from 20 percent in 1995-96 to 28 per cent in 2001-02; this is expected to move up to 35 per cent by 2005 – 06 and to 48 per cent by 2009-10. This translates into a CAGR of 9.3 per cent over the next 8 years and will result in higher spending capacity and eventually, in greater consumption.