Last week, I came across a news article that stopped me in my tracks. Apparently, the world's fastest car – the Bugatti Veyron 16.4 Grand Sport, for the uninitiated – is all set to hit Indian roads on October 28th. While I appreciate the need for speed in the dynamic economy that is India, what really took me aback was the price tag – an eye-watering `120 million (i.e. approximately US$2.7 million). (That one can probably count on one hand the number of Indian roads where an owner will actually be able to test the car to its potential is a different matter and one that I will leave for another time.)
The chosen date for the Bugatti India launch – October 28th – is an auspicious day. No, I have not checked my crystal ball. Neither have I consulted an astrologer. However, I am sure Mukesh Ambani and his family have. It just so happens that October 28th is also the day that the elder Ambani and his family are having a house-warming party to celebrate their new, US$1 billion residence in Mumbai. While the family is being as under-stated as you can be about a 27-floor house for a family of six, ‘Antilia’ (the mansion) is understandably attracting much attention.
So, are India’s rich simply getting richer and leaving their brethren behind? Apparently not.
- India has the fastest-growing population of millionaires in the world, according to Forbes.
- India's wealth has tripled to US$3.5 trillion in the last decade, according to Credit Suisse. Their analysis highlights that by 2015, India's wealth could double to around $6.4 trillion. The report notes that, contrary to popular belief, India's wealth distribution is skewed towards the lower end of the wealth pyramid.
- Wealth held by individuals in India is said to be growing at a 26 per cent compounded rate, more than four times the global average.
The implications for the luxury market are obvious in terms of potential, though not so obvious in terms of strategy. In fact, study after study has shown that in order to succeed in India, luxury brands need to localise their marketing strategies.
This begets the question, is Indian wealth becoming typified by the motto ‘if you’ve got it, flaunt it’? Not necessarily.
Technology czar Shiv Nadar has committed to put aside well over 10% of his wealth for philanthropic ventures. Soap-to-software magnate Azim Premji has recently announced that he will personally be setting up a US$1 billion education endowment fund. Ratan Tata has announced a US$ 50 million donation to Harvard Business School, while Anand Mahindra has announced US$10 million to the same alma mater.
Yes, wealth is coming out of the Indian closet. Is this unique to India? No. According to a recent study by the Asian Development Bank, by 2030, Asia’s consumers will spend US$32 trillion, accounting for 43% of global consumption.
Perhaps M/s Bugatti’s parent, Volkswagen, hopes to realise its literal translation - ‘the people’s car’ - in the world’s most populous continent.
If you would like to understand more about how to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.
11 comments:
HNIs push up yatch sales in India - http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/HNIs-push-up-yatch-sales-in-India/articleshow/6789812.cms
Posted by David Lydon on LinkedIn Groups Discussion Forum:
Ratika, the article makes projections to 2030. Surely any projections that far ahead regarding India need to account for much of the wealth being generated today relying upon outsourcing: ie, cheap labour. Large Western organisations have presences in India for that very reason and many Indian success stories (IT consultancies and software houses) have exploited the opportunity to the full.
In a project I've been involved in, whereas Indian staff used to be around one sixth the cost of their Western counterpart, 6 years later they're now around one third to one half the cost. Given that that trend is unlikely to reverse, the costs of getting outsourcing off the ground and its unpopularity in the outsourcing orghanisations' homelands (that are seeing increases in unemployment) I would expect to see major shifts in outsourcing policy well before 2030 and for that to impact India.
I hope India can become much more self-sufficient by then and less reliant on Western needs for labour; I'm just cautioning basing long-term predictions on current, probably unsustainable, trends.
David - Many thanks for your comment.
The reality is that income from outsourcing still accounts for a very, very small proportion of India's GDP. In fact, one of the reasons that India has not been as adversely affected by the global recession is because of its dependence on the internal market.
As far as the ADB study's projections are concerned, currently India has a relatively high savings rate in the vicinity of 35%. It is anticipated that this will reduce and the consumption ratio will increase.
Related link : India's super rich drive Rolls-Royce sales, see http://www.thehindubusinessline.com/2010/10/22/stories/2010102250710200.htm
India's smaller cities show off growing wealth : http://timesofindia.indiatimes.com/india/Indias-smaller-cities-show-off-growing-wealth/articleshow/6808331.cms
Posted by David Lydon -
Thanks for the response, Ratika.
I should have stated that I appreciate that self-sufficiency was a major aim in the restructuring of the Indian economy and that sound foundation sees foreign direct investment representing a small proportion (I think the latest FDI figures show less than 5%?) of GDP - but the current trend is that it, and outsourcing, is increasing.
In addition, most of the reports that I've read recently maintain that outsourcing, while not major, is still something of a driver for India's burgeoning middle class, and in an economy that is reliant on services nobody really knows (or at least, the usual suspects don't) what impact the domino effect of pulling the rug from underneath one sector will have.
If we look at the UK at the moment: the public sector cuts announced this week will apparently cost almost 500,000 jobs, with another 500,000 private sector jobs that are directly dependent on part-privatisation and contracts to follow. But analysts are more reluctant to speculate on what will happen when these people stop going to the hairdressers, stop buying new cars, stop going out for dinner, stop going on holiday, cancel their cable/satellite subscription, don't renew their mobile phone contracts... and then when these service providers scale back accordingly. The reality is that the full effect of the recession will take another few years to be fully realised - and that's if there isn't another dip in the meantime.
I'm not scaremongering about India - the economy there is certainly a success story and will prove resilient even if FDI and outsourcing is withdrawn. But if that does happen it will represent removal of significant income from the economy and, given the inaccuracy of respectable (at the time) projections that were made 5 years ago, making predictions 10, 20 years into the future based on current trends seems ambitious (there could be equally unforeseen positive trends that accelerate the predictions).
David – The reality is that as any country develops, you have greater activity that migrates into the economic mainstream, i.e. the organised sector from the household sector. As a result, the share of the service sector typically tends to increase in tandem. This is what is happening in India.
I would disagree with the premise that outsourcing is driving growth in the Indian middle-class. Yes, the services sector accounts for approximately 55% of India’s GDP. However, off-shore IT services are a very small percentage and are far from being the most vulnerable factor in India’s growth story.
I appreciate your comment that 20-30 year projections are very ambitious given the extent of uncertainty and complexity in the world. But, if one focuses on current economic performance, the reality is that despite recession gripping most of the developed world, India witnessed GDP growth of 7.8% in 2009-10 and estimates project growth at 8.5-9.5% in 2010-11.
You have raised some very fundamental issues about drivers to economic growth. The current policy approach in the UK begets the question whether a country can contract itself into growth. As far as I can see, only time will tell.
Posted by Rajeev Arora on LinkedIn -
In that case, Ratika, do you think India hosting world's first zero-emission Car Racing World Series Event in March, 2012 is far fetched?
Rajeev – I suppose not, given that Formula 1 racing is coming to India in Oct 2011.
Most expensive car in India: Bugatti drives in Veyron at Rs 16 cr - http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/Most-expensive-car-in-India-Bugatti-drives-in-Veyron-at-Rs-16-cr/articleshow/6828433.cms
Global luxury brands light up for India - http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/Global-luxury-brands-light-up-for-India/articleshow/6849598.cms
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