An ICICI Bank study has projected that retail spending will climb to Rs 2,100,000 crore (Rs 21,000 billion) in 2010 from Rs 1,300,000 crore (Rs 1300000 currently, even as the personal loan market will grow at 60 per cent per year to touch Rs 50,000 crore (Rs 500 billion) in 2010 from Rs 6,000 crore (Rs 60 billion) at present.
"The increase in consumer spending is likely to be steep with a huge number of new consumers entering the market. And the frequency at which already affluent consumers buy will also go up," says B Narayanaswamy, executive director, Indica Research.
The boom is being fuelled by cheaper and easier availability of personal credit, the study says, adding that the average loan size has been increasing 15 per cent annually since 2000.
"In the last two years, easier availability of credit has meant an incremental consumer spending of Rs 120,000 crore (Rs 1,200 billion), which represents a 10 per cent growth," says KSA Technopak Chairman Arvind Singhal.
According to KSA Technopak estimates, nearly 12 per cent of the urban socio-economic category A and B households paid equated monthly installments in 2003, of which 45 per cent had availed of home loans.
ICICI Bank has estimated the average loan size in a metro to be Rs 145,000 crore. "Even if a conservative estimate of 15 per cent growth is factored into this, which could be spent on retail segments like jewellery and furniture, it translates into Rs 900 crore of additional consumer spending in 2004," says V Vaidyanathan, senior general manager (retail banking), ICICI Bank. Nearly 40 per cent of the personal loan offtake is accounted for by consumers in the age group of 30-40.
Thanks to the proliferation of business process outsourcing and service sector jobs, the number of families with multiple incomes in urban India has gone up.
"Fixed household expenditure has remained constant, whereas disposable income has suddenly doubled or tripled," says Singhal.
"Consumer aspirations in metros and smaller cities are evening out. Due to the lower cost of living, those in the smaller cities end up with higher discretionary spending," adds Singhal.
But the question is: are Indian marketers geared to ride the boom?
"Yes, supply will follow demand. But companies have to be more aware and speed up distribution. They should also understand the value proposition that the consumer seeks," says Narayanaswamy.
"Two-wheeler, mobile phone and consumer durables companies have responded quickly to the changing spending patterns of consumers. Those who have missed the mark so far are organised textile companies and large branded FMCG products," says Singhal.
