Market research: India's growth market
Overview
With India’s thriving IT and service sectors continuing to boost the country’s dynamic economy, Daimler’s Society and Technology research group is weighing up the opportunities for the automotive industry.
Have you ever heard of Vijayawada, Madurai, or Vadodara? Don’t worry if you haven’t. There’s no need to feel ashamed about never having encountered the names of these three Indian cities, each of which has more than a million inhabitants. In fact, they don’t often attract a lot of attention in India either, which has 35 cities with a million or more people. The largest of them — Delhi, Mumbai (Bombay) and Kolkata (Calcutta) — each boast a population of more than 10 million.
There are now more than 1.1 billion people living in India — 300 million of them in major cities. The remaining 800 million make up India’s massive rural population, many of whom live in small towns and villages that have neither a proper road nor a rail connection to the outside world. “The first impression of India is one of complete chaos and contradiction,” says Stefan Carsten, a geo?grapher at Daimler’s Society and Technology research group in Berlin. “On closer inspection, however, you realize that it is in fact a stable democratic state with a functioning legal system.”
India is a flourishing country in two respects. To begin with, the population is currently increasing at a rate of 1.3 percent. This means that the proportion of young people in the population as a whole is growing strongly. At present one in two Indians is below the age of 25 and India is destined to overtake China as the most populous country in the foreseeable future.
At the same time, the Indian economy has also been growing strongly for over a decade. Over the last four years alone gross domestic product has risen by 8.6 percent a year. “That’s one of the principal reasons why there’s so much growth potential for the passenger car, commercial vehicle, and financial service markets,” continues Carsten, who earlier this year spent three months carrying out field research on the Indian subcontinent.
It’s a view shared by other experts on the region. Indeed, social scientists and economists from corporations such as Deutsche Bank or universities and research institutes also see India, which this year celebrates its 60th year of independence, as the country with the highest growth rates worldwide. “Just as the world’s getting used to China’s presence, the next Asian giant is already starting to stir,” says Carsten’s colleague Christian Neuhaus, whose specialist field is the Chinese market.
Recent years have seen the former British crown colony transform itself from an agrarian to a service economy. This transition has been largely shaped by the IT and biotechnology industries — a feature that makes India very different from the other so-called emerging markets, including China.
In fact, it looks very much as if India is about to leapfrog the phase of industrialization altogether and establish itself directly as a service economy. This prospect has its charms, not least because it would avoid many of the environmental problems that are currently bedeviling China. On the other hand, there is a real danger that without further expansion to its infrastructure and industry, India will find it impossible to create enough jobs for the 400 million or so people of an employable age.
There seems little doubt that India is about to become the next tiger state. The task facing Stefan Carsten and his colleagues is to assess where it might leap to and what the impact of such powerful economic growth might be. It’s by no means an easy task. On the one hand, India has an urban, upwardly mobile middle class, whose younger members are very consumption-oriented. As their incomes rise, so too does their taste for household goods, TVs, motorbikes, and mid- and upper-range cars.
On the other hand, the country is home to one-third of the poorest people on earth, and a quarter of its population is illiterate. The country’s inadequate transport infrastructure also represents a major problem. To its credit, the administration is now making a big effort to link the key cities of Dehli, Mumbai, Chennai and Kolkata via four- and six-lane highways. There are also plans to connect 170,000 rural communities to the public road network. Ultimately, however, the country’s highway network is simply not adequate.
In particular, the streets of cities are permanently choked with traffic and exhaust fumes.
Traditional caste system
One of the many imponderables that will decide India’s future is the country’s caste system, which has officially been outlawed since independence. Yet, as Carsten explains, the 3,500-year-old system remains “firmly anchored in society, especially in rural areas, where around 200 million Indians are still classified as Dalits — in other words, members of the caste of untouchables.” Under such conditions it is difficult to make predictions about cultural change, the future structure of Indian society, or market conditions. “Classic market-research methods are not much help here when it comes to determining future consumer behavior,” say the Berlin researchers.
In order to arrive at reliable predictions, the team of researchers has therefore identified a range of scenarios and trends. To do so, it precisely analyzed the current state of affairs in order to make predictions that are based on realistic and plausible assumptions about the future. First of all, it considered individual areas of society in isolation and then combined these in line with their varying importance.
Together with internal and external experts from both Germany and India, Carsten developed two scenarios that show how the country and its transport sector might develop under specific conditions. In the wide-ranging study, entitled “Macro Environment Scenarios 2015,” he first analyzed 21 different areas, ranging from population growth and unemployment rates to the availability of resources, the environmental awareness of the people, and India’s role in the world.
He then identified the chief factors in each of the 21 areas and sketched out the developments these would give rise to until 2015. Here, he allowed himself two or three differently weighted projections. This process generated a total of 60 individual jigsaw pieces that Carsten then fitted together to create two scenarios describing India’s possible development. The scenario entitled “The Indian Tiger: Powerful but Hungry” predicts persistently strong economic growth. For this projection, Carsten assumed that the country will remain politically and socially stable, with the IT and service sectors making a major contribution to the economy. However, despite this optimism, individual areas will remain in a critical state. The weak points include the country’s inadequate infrastructure, its dependency on foreign sources of energy, and the standard of education in rural areas.
The second scenario, entitled “Visions Dreamt for Good,” supposes that growth will slow down and the government? and the economy won’t be able to generate a sufficient number of jobs. In turn the pressures of globalization and economic liberalization will lead to social unrest. Finally, if the transport and energy sectors stagnate, while China continues to grow in strength, it will be difficult to persuade foreign investors of India’s viability as a future economic power.
Both scenarios are plausible, because both are based on realistic assumptions. A critical factor for India remains its poor infrastructure. On the other hand, with its educated middle classes, its booming IT sector, and its aspiration to achieve political and social stability, the country could well fulfill its immense promise. All things considered, Stefan Carsten is therefore optimistic. Compared to China, he says, India has greater potential and lower risks in the long run. In other words, there seems little likelihood of the Indian tiger ending up as a bedside rug.
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