Declining share of basic goods

 *Source: Market Skyline of India 2008-09 

To learn from the mistakes of a man who died jumping off a cliff with an average height of 4 feet, it is essential to look into the rural urban bifurcation of incomes in a country plagued with dualism. A high rate of urbanization correlates with higher consumption and this has been the case for urban India where incomes rose by 22.7% in these two years. Rural India continues to trail this with rural incomes rising by just 15.5%.However, what is heartening is the qualitative improvement in income distributions within rural India where the top four income bands have grown. Also, the lowest band i.e. those households with incomes between Rs. 75,000-1,50,000 has shrunk by 4.2% in numbers. Despite these progressive undercurrents 80% of the rural population continues to earn less than 1.5 lakh per annum. The increases in the upper bands are significant, but they don’t account for large numbers.Though changes are headed in the right direction, inclusive growth is still a distant dream with the income distribution pyramid of rural India being bottom heavy. Urban India is shining with not only the net quantum of incomes rising but suitable qualitative changes following suit. Families with incomes exceeding Rs. 10 Lakh per annum and those with incomes between 3-5 lakhs per annum have burgeoned tremendously by 41% and 51% respectively, in numbers and their shares have increased. On the other hand, the two lowest income bands have systematically shrunk by 10 and 5% respectively.

The way forward

As disposable incomes rise, the consumption of superior goods is rising and that of inferior goods is falling. The Indian consumer is undeniably evolving. He works hard and parties harder. He is comfort and lifestyle conscious. He loves to eat out, shop and travel. The day is not far when the number of driving licenses will be a miniscule proportion of the number of personal vehicles. Increased spending on medical facilities and education is evident in increasing longevity and literacy ratios. Though miscellaneous goods & services will continue to account for the lion’s share of total consumer spending, the FMCG category might steal the show in terms of growth rates in future years. The threat of inflation might be sufficiently countered by the urban aspirational spends and a renewed vitality in rural demand. Wellness, leisure, utility maximization and the need to be contemporary will continue to be in vogue. Moreover sustained efforts by FMCG producers to retain their share in consumer budgets through product innovation, competitive pricing, rural marketing and brand building are likely to payoff. You can’t fly unless there is resistance and a word of caution at this juncture is important.

The durable goods industry might fail to grow at the desired pace unless inflation subsides. Rising input costs seem to nullify the gains resulting from the duty cut announced in the budget this year. Aggressive marketing, product innovation and enhancement, judicious pricing and innovations in distribution perhaps hold the key for this sector.On the welfare front, the villain of the bourgeoisie is rising in urban and rural India. Households with incomes exceeding Rs. 10 Lakh per annum constitute less than 2% 0f the urban society but more than more than one-fifth of the urban income. Though this by itself is not a cause for worry, the rising disparities are. Faster growth is of limited value if it is not inclusive. A rise in per capita income must be complemented by improvements in inequality ratios for growth to be all encompassing. This is not just an altruistic desire but also a necessity to keep a large and plural society in harmony.

The increasing consumer spending is the result of an economic boom and can cause a bang only if real incomes continue to rise. Given the spiraling prices the consumers are feeling the heat. It is up to the producer to take the horse to the water and make him drink it too, and up to the policymakers to crack the whip on inflation.  The Indian racehorse is young and supple but the credentials of its jockey are yet to be established. There will be little between the finishing post and India if we can cross the hurdles of inflation and policy bottlenecks.