Thursday, August 2, 2012
The demographic dividend: Can India beat the world?
Titled ‘Who are the World’s Consumers’, the report by a new research paper by Deutsche Bank global strategist Sanjeev Sanyal says new trends in education, income and family structure hold key implications for companies as well as investors as Asia Pacific economies start to account for a larger slice of the consumption pie. “Asian consumers are not just replacing the West, but also eating into the shares of other emerging regions,” Sanyal points out.
Here are 10 top takeaways from the report:
1. India’s per capita GDP has increased from $419 in 1990 to $1097 in 2011, more than doubling in that period, while China’s has jumped from $ 466 in 1995, roughly the same as that of India, to $3149 in 2011, an increase of about 675 per cent.
2. India has the world’s second largest population of poor and aspirant households, after China. These are described as homes with annual incomes of below $5,000 and between $5000 and $15,000, respectively. India has about 10.5 crore poor and 10.6 crore aspirant households, while China has 16.4 crore and 17.2 crore in those categories, respectively.
3. However, China remains ahead of India in the lower middle class, upper middle class and rich slabs, which are described as households with incomes of $15K-$45K, $45K-$150K and above $150K, respectively. While India has 1.5 crore, 22 lakh and 6.88 lakh of each, China has 5.1 crore, 75 lakh and 16 lakh. In other words, China has three times as many lower middle and upper middle class households and more twice the number of rich that India does. (Interestingly, India has more rich households than Russia.)
4. Sanyal notes that as one goes down the income slabs, different countries have a clustering of households at different levels. Brazil has a peak in the Lower Middle Class, China among the Aspirants and India among the Poor. What this means for companies is that if they want to take advantage of the sheer bulk of India and China, they need to look at the poorer households, an argument that echoes Bottom of the Pyramid theory of consumer demand.
5. According to the paper, which quotes an OECD report, the share of global middle class (households that have daily expenditures between $10 and $100 per person in purchasing power parity) is set to see dramatic declines in Europe (from 18 per cent to 10 per cent) and North America (from 36 per cent to 22 per cent) by 2020, while almost doubling in Asia Pacific (28 per cent to 54 per cent), and staying mostly stable in other parts.
6. Asia Pacific, which includes the major economies of India, China and Japan, are also projected to almost double their spending from 23 per cent to 42 per cent, while both North America and Europe will about a 10 per cent drop each.
7. The reason this is happening is because of a rapidly changing age profile in these areas. By 2030, India will have the youngest median age of 31.2 years, while China’s will be 42.5 years. Most major economies will see a decline of working age adults (20-64 years). What this means is that India will see a significant rise in working age adults (read spenders).
8. By 2030, then, a good 59 per cent of India’s population will be of working age adults, up from 54.3 per cent in 2010, while China will see a decline from 63.6 per cent to 61.6 per cent. China will also see an almost doubling of 65-plus citizens to 18.7 per cent, while India will go from 5.6 per cent to 9.4 per cent. The good news for India is that a good 31.6 per cent will be 0-19, and ready to fill the pipeline, while China will have only 19.7 per cent of its citizens in that category.
9. India also has the highest proportion of couples with two children, or nuclear families,, at 52 per cent, followed closely by Brazil and China at 49 per cent. India also has the least number of single person households at 3 per cent, compared with 10 and 7 per cent for Brazil and China. In developed economies such as Germany and the UK, more than a third of households are single-person ones, have almost a third of their households as single-person at 39 and 34 per cent, respectively, while the US has 27 per cent single-person homes.
10. Education will also play a big role in how economies pan out over the next two decades. Primary school enrolments in India have jumped 58.8 per cent in the 1990-2011 period, followed by Brazil (27.8 per cent) and the US (12.7 per cent) while China has actually seen negative growth of (-) 18 per cent. In absolute numbers, too, India has the most number of kids in primary school. In higher education, which is a key supplier of educated workers and consumers, India (1.90 crore) currently lags China (3.2 crore) and the US (1.99 crore). But as China’s population ages faster with little supply, India, with a much younger median age, has a bigger pipeline of educated buyers.