Friday, March 16, 2007

New World Patterns (part-2)

The highest growth rate was recorded by expenditure on medical care and health services, which increased by more than II %. This was closely followed by expenditure on hotels and restaurants and that on transport and communication, which rose at an annual average rate of about 9%. Two categories - recreation, education and cultural services and furniture, furnishings, appliances and services - also recorded significant growth. This reflected a perceptible shift in consumer spending from primary products to higher value-added manufactured goods and services.

This brings us to the question: What determines the spending behaviour of individuals? To reiterate, a host of factors; besides income levels, influence consumer expenditure patterns. As MISH surveys of NCAER indicates, rapid infrastructure penetration (particularly, availability of electricity) is the panacea for most of our problems. Availability and access to infrastructure of all types - power, roads and transport, telecom and water and sanitation - is a major factor leading to a huge gap between urban and rural penetration of consumer durables and non-durables.

Then there are marked differences in lifestyle between the urban and the rural areas. What cannot be overlooked, however, is that the middle class (those with an annual household income of Rs 2-10 lakh at '01-02 prices) has increased at a rate of 12.2% per year from '01-02 to '05-06, while for the next four years, its annual growth rate is expected to be around 13.7%. Similarly, the size of the lowest income class will shrink steeply from 72% to 52 % by the end of the decade.

Over the past decade, there has been a steady increase in urban disposable income and many middle-class households are moving up the income ladder. This can partly be attributed to more and more women joining the corporate world, leading to a phenomenal increase in double income families.

Riding high on availability of lucrative financing schemes and all-round social and economic' development, consumer tastes and perceptions are evolving swiftly. It is for the producers to react to this scenario in order to meet the changing and growing needs of consumers. The success of a product depends, to a large extent, on its affordability, easy availability and ability to be important to the consumer. Hence, the foremost challenge for companies will be to devise a multi-pronged strategy to cater to a multi-tiered consumer base through continuous improvement and creation of new products, effective targeting and positioning of goods and improving the price-value equation. The future is wide open.

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