Furthermore, some 120 cities will have matched today’s major metropolitan areas in average household income. Assuming five members per household, Hurun’s report covers roughly 288 million Indians who are either wealthy or middle-class. While this may suffice to keep our consumer economy ticking, we also have about a billion citizens at the bulky base of our pyramid who need to move up over the next few decades. If they suffer stagnancy, our economy would risk slipping at some point ahead into a ‘middle-income trap’, characterized by a slowdown, as the relatively satiated see their consumption flag (as a proportion of earnings) and domestic markets for products and services run into early maturity. Recent solutions of policy have involved a push for such basics as hygiene, apart from electricity, water and gas supply.

Overall, these results reflect a significant difference in the income dynamics under IHDS and NSSO scenarios over the decade 2001–2010. We live in a time characterized by increasing anxiety about economic inequality (Kohut, 2011; Lyster, 2016; Oncu, 2013; Ribeiro, 2013). Since the early 1980s, there has been a systematic growth of income inequality in nations across the world, and India has been no exception (Milanovic, 2016). Income inequality shows a declining trend for the first 3 decades after independence, with the top 10% (1%) earning 36.7% (11.5%) of the total income in 1951 and 30.7% (6.7%) in 1981.

It is well recognized fact that economic growth is essential for a nation like India to effectively combat poverty (Adams Jr., 2004; Fosu, 2017; Planning Commission, 1962; Roemer & Gugerty, 1997). Kuznets (1955) argued that some level of inequality was inevitable as economic growth happened and that redistribution would follow economic growth, though there is evidence to suggest that lower inequality benefits economic growth and therefore poverty reduction (Alesina & Rodrik, 1994; Fosu, 2017; Lakner et al., 2019). To contemplate https://1investing.in/ appropriate models to simulate income growth over time, it is useful to go back to the systematic nature of the relationship between mean income and income inequality post the Industrial revolution (Milanovic, 2016; Piketty, 2014)—both quantities, on average, are found to rise over time. Given this framing of income dynamics, income evolution is well suited to be studied as a multiplicative growth process following Geometric Brownian Motion (GBM), which obtains a broadening lognormal distribution over time.

  1. As many as 40% of all transactions conducted on smartphones are unplanned or impulse based.
  2. The percentage of women in the Indian workforce dropped to 19 percent in 2021 from 32 percent in 2005.
  3. When we factor in population growth, there are 431 million fewer deprived Indians today than there would have been had the poverty rate remained stuck at its earlier level, making India’s economic reforms the most effective antipoverty program in its history.
  4. The latest estimates we have are from the Hurun India Wealth Report 2020, which offers us a rather finely sliced view of the country’s well-off and well-heeled.

While India as a whole is a growth story, certain market segment pockets—emerging cities, micromarkets within cities, and categories that benefit particularly from rising incomes—are showing breakout growth. Companies looking to capitalize on India’s growth story need to identify the high-growth segments and pockets for their brands and products. Moreover, across all kinds of categories, Indian consumers are exhibiting increased curiosity and excitement over exploring local roots. They are interested, for example, in natural products in personal care, local flavors in packaged food, and hand-woven fabrics in clothing. The bundi sleeveless jacket is back in vogue; in fact, Time magazine has ranked it among the top ten political fashion statements worldwide. Fabindia, which describes itself as “India’s largest private platform for products that are made from traditional techniques, skills and hand-based processes,” is among the largest and most profitable retail-apparel brands in the country.

Number of rural households in India from 2018 to 2022, by annual income

By 2025, wealthy urbanites will be responsible for one-third of total consumption. The share of the next billion and strugglers will shrink from 49% in 2016 to 36% in 2025. India’s much-vaunted middle-class has played a major role in attracting foreign investment, but just how large are the well-off cohorts at the upper reaches of our socio-economic pyramid? Wealth data is far harder to obtain and ascertain than income figures, and so any stratification drawn from a survey-backed study evokes high levels of interest. The latest estimates we have are from the Hurun India Wealth Report 2020, which offers us a rather finely sliced view of the country’s well-off and well-heeled.

Abhishek was working as a manager in a pharmaceutical company; Radhika was a housewife. Their annual household income ranged from $14,000 to $15,000—more than 60% higher than that of Shabahat and Nishat Fatima in 2011. They were spending more as well, but their expenditures represented a smaller share of their income (65% to 75%), which means that they were saving more. They lived in a two-bedroom apartment, owned by Shabahat’s father, in Ghaziabad, Uttar Pradesh. Their annual household income ranged from $8,500 to $9,000, and their consumption expenditures totaled 70% to 80% of their income.

Likewise, many Indians have traditionally viewed gold jewelry as a safer way to save than banks, but young Indians today are likely to see jewelry as a fashion statement, not a savings plan. They are also increasingly comfortable using credit cards —the share of Indians who carry plastic has quadrupled since 2001. This can be contrasted with the US’ consumption basket, where household utilities have the highest share at 17 percent and spending on food is only 7-8 percent.

For salaried households, even those with fat pay packets, home ownership is still a very big deal as far as ‘assets’ go, with share purchases largely a secondary pursuit. Property is especially favoured by our ‘new middle-class’, which seems to consider it a key provider of comfort as much as a prominent symbol of status. All in all, the report confirms a classic divergence between the bulk of us who work for money and the few who make money work for them. Given this empirical characterization of the evolution of income post the Industrial revolution, we seek to model income evolution as a multiplicative process following Geometric Brownian Motion (GBM). In doing so, we follow the reallocating GBM (RGBM) methodology of Berman et al. (2017), where they incorporate a redistribution parameter \(\tau\) to the GBM to capture the direction and magnitude of reallocation occurring within the distribution. While India’s rising wealth will provide more resources to tackle these issues, its fast-growing population will stress its public services even further.

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With shares — before the pandemic, there were 41 million Indians with online stock trading accounts, and these people would have made a lot of money since then. Now, of course, the number of Indians with such trading accounts has risen to more than 100 million. It’s quite clear that companies that address this cohort exclusively, or largely, have been growing much faster than companies that address broad-based consumption.

Spending Patterns Evolve

Across all income segments, consumers in major metropolitan centers and tier 1 cities (those with populations of more than 1 million) spend more than their counterparts in other locations. This is true for basic categories (such as laundry detergent powder and biscuits) and for more discretionary categories (such as eating out and the mobile internet). Higher spending levels in big cities are not the result of greater product penetration, as penetration for a given income segment is generally similar across cities. Consumers in big cities, on average, buy more premium products, which leads to higher spending. This represents an opportunity for companies that make more premium products available—and can convince buyers of their value—to boost growth by encouraging consumers in small cities to trade up.

India’s nominal per capita income was US$1,670 per year in 2016, ranked 112th out of 164 countries by the World Bank,[4] while its per capita income on purchasing power parity (PPP) basis was US$5,350, and ranked 106th.[5] Other estimates for per capita gross national income and gross domestic product vary by source. For example, India’s average GDP per capita on PPP basis in 2009, according to The Economist, was US$5,138, with significant variation among its states and union territories. Goa had the highest per capita PPP GDP at US$14,903, while Bihar the lowest with income pyramid india per capita PPP GDP of US$682 as of 2015[6] In rupee terms, India’s per capita income grew by 10.4% to reach Rs.74,920 in 2013–14. This change in family structure is having far-reaching implicatons for income and spending as young single men and women base their consumption decisions more on lifestyle considerations than on functional needs. Anecdotal evidence and parallels from other countries indicate that these singles are more individualistic, but they also think of communities (physical and virtual) and causes (social and political) as proxies for families.

From 2016 through 2025, the share of elite and affluent households will increase from 8% to 16% of the total while the share of strugglers will drop from 31% to 18%. There are also poverty reducing benefits if multi-nationals work with civil society organizations and local governments to create new local business models. Only few institutions provide inequality estimates and those who do so (e.g. the the OECD or the World Bank data portals) rely for the most part on household surveys.

This allows us to release inequality estimates that are more reliable – from the bottom to the top of the distribution of income and wealth – and also that span over much longer periods. By 2014, the national income share of the bottom 50%, a group of about 390 million adults, was just two-thirds of the share of the top one percent, who totalled at 7.8 million. While the details of specific policy proposals to counter income inequality will need deeper consideration, what our work specifically highlights is the need for structural reforms to ensure that the divergence of the income distribution is reversed and we are able to return to a persistently progressive redistribution regime. Branded clothes are becoming de rigueur for the wealthiest Indians—Christian Dior, Louis Vuitton and Tommy Hilfiger already have a presence in the country. For generations, Indians did their daily shopping at fresh-food markets and regarded packaged foods as “stale.” However, just like their Western counterparts, a new generation of busy urban Indians is starting to appreciate the convenience and choice offered by packaged foods.

That possibly has to do with the fact that agricultural output prices have not increased much over the last five years. And there have been disruptions such as demonetization and the introduction of a new, nationwide goods and services tax, followed by the pandemic, which affected a higher number of small businesses and people in low-income segments. One such company is Tata Motors, India’s leading auto manufacturer, which has announced its intention to introduce the world’s first “one lakh” car. Historically, a new car was out of reach of the vast majority of Indian households.

Multiple studies have placed Indian workers among the most stressed in the world. The most visible (and not always positive) manifestation of this trend is multitasking—talking on the phone while driving, for example, or checking e-mail while having dinner with friends. For example, we expect 65% to 70% of sales in, say, consumer electronics to be influenced digitally by 2025, while the impact in other categories, such as fast-moving consumer goods, will be much lower, in the range of 25% to 30%, thanks to different starting positions and inherent category characteristics. Within categories, their spending patterns were different from those of Shabahat and Nishat Fatima.

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