India Retail Report Q3 2016
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BMI View: Household spending has remained constrained over the past two years even as the rest of the economy posts strong headline growth rates. We expect spending will gradually improve over our forecast period as consumers become confident. That being said, Indian households are highly price-conscious, as average income remains low. Key consumer groups will be the young, increasingly urbanised population who will emerge as the main drivers of retail spending.
However, most Indians are still rural dwellers, and the agriculture sector is a major employer. As agricultural incomes are typically low, and workers in the sector are affected by unstable weather patterns as well as underemployment, this limits the participation a large majority of the population can have in the modern retail sector. Indeed, while incomes are rising, they will remain small, with 14% of Indian households forecast to have a net income of USD10,000 or over by 2020. This means that retail spending will continue to be skewed in favour of essential purchases and non-organised retail, while rural dwellers, and retailers seeking to access this market, are hampered by poor transport infrastructure, which raises costs dramatically.
While essentials, notably food and drink, transport and housing and utilities, will still account for the lion's share of retail spending in India over our forecast period, non-essential spending such as on restaurants and hotels is growing rapidly from a low base, and spending on areas such as health and education is also growing rapidly.