IndiaRetailBiz

Roopa Purushothaman and Rajesh Shukla, the celebrated co-authors of Goldman Sachs’ famous BRIC report, which in 2003 had predicted that by 2050 Brazil, Russia, India, and China put together will have larger economies in US$ terms than the G-6, consisting of the U.S., Germany, Japan, the U.K., France and Italy have collaborated again to come out with a joint study entitled “The Next Urban Frontier: Twenty Cities To Watch.”

This time the study, though, has been prepared on behalf of their respective current employers, Kishore Biyani’s Future Capital Research and National Council of Applied Economic Research’s (NCAER).

The study was recently NCAER Chairperson Nandan M Nilekani, who is also the Founder and Co-Chairman of Infosys Technologies.

The study has identified 20 top Indian cities, which though accounting for only 10% of the country’s population, generate as much as 60% of its surplus income and 31% of its disposable income.

The authors have classified these 20 large cities, which accounted for nearly $100-billion of consumption expenditure in 2007-08, in three groups comprising; Megacities (8), Boomtowns (7), and Niche Cities (5).

The eight Megacities that apart from large population also have large consumer markets are: Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad and Pune.

The seven Boomtowns that have big population and high expenditure per household are: Surat, Kanpur, Jaipur, Lucknow, Nagpur, Bhopal and Coimbatore.

The five Niche cities that are relatively smaller in population but have above national-average household spend are: Faridabad, Amritsar, Ludhiana, Chandigarh and Jalandhar.

According to the report, these 20 cities despite impending economic slowdown, for the next eight years (2008-2016), will grow at a healthy rate of 10.1% per annum, compared to other cities growing at 7.9% per annum. In the past three years (2005-08), the top 20 have registered a growth of 11.2% per annum.

The increase in income levels will also have a direct impact on income profiles of households. In the next eight years by 2016, while, the share of middle-income household ($6,000 to $30,000 per annum) in these twenty cities will increase from current 39% to 55%, the share of high-income households (more than $30,000 per annum) will increase three-fold to 13%. The share of very low-income households (below $3,000 per annum)not surprisingly, would come down by half from 16% now to 7% by 2016.

The changing household demographics will no doubt bring about a major shift in demand pattern of different classes of goods. According to the study, there is a 52% increase in spending as households graduate from low-income to middle class segment. The demand for the durables, for example, may go up by a substantial 84%, says the study.

The report has also predicted that, even on conservative basis, in the next 40-odd years by 2050, share of the urban population in India will almost become equal (45%) to that of the rural population (55%). Currently, the ratio is 30:70 in favour of the rural population. This rapid urbanisation will mean an additional 379-million people in urban India. Interestingly, this would mean adding more than the entire current population of the US to urban India.

We hope to cover additional findings of the study that have direct impact on consumption and, therefore, on fortunes of retail in general and on modern retail in particular in the coming days.