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Saturday, 24 June 2017 00:00
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Sarthak's edit


From cars to phones, premium is replacing low-cost


Cheap or low-cost, increasingly, is not a definition you can naturally associate with India. Smartphone sales in the January-March 2017 quarter challenge a notion that almost become an article of faith, that the next phase of the telecom revolution in India would be predicated on cheap smart-phones. Partly because data has become so cheap after RJio’s entry, and because RJio’s data plans—as well as the best plans of incumbents like Airtel—can only be accessed on more expensive 4G phones, the Indian consumer is up-trading quite rapidly. A Business Standard report cites data from Counterpoint Research that shows that the average selling price of smartphones in India jumped from Rs7,870 in 2016 to Rs9,750 in the first three months of 2017. While sales in the sub-Rs4,000 segment, where most Indian handset makers have the largest presence, fell by 66%, the Rs15,000-20,000 segment saw a 158% rise and the Rs8001-10,000 segment saw a 77% rise in the January-March quarter.

And it is not just smart-phones. An HSBC report on the passenger car industry points out that premium hatchbacks and compact sedans account for nearly 40% of the Indian car market today, up from just above 10% in 2009. Small cars that were once the hallmark of India’s automobile market have seen their share fall to 26%, from 44% in 2009; the market share of SUVs is now at 27%, up from 14% some five years ago. It reflects in the product mix at the country’s largest car-seller, Maruti Suzuki—large/premium cars made for 41% of its domestic sales in FY17 as opposed to 11.6% in FY11.

Income growth and the falling cost of ownership, thanks to flatter interest costs, muted increase in prices of consumer durables and massive discounts/cashbacks explain this best. While per capita income nearly doubled in the high growth years—from Rs27,131 in FY06, it reached Rs54,021 in FY11—it has grown by 91% since, reaching Rs103,219 in FY17. Against such income growth, the prices of durables have shown rather sluggish movement—WPI for motor vehicles, for instance, rose a mere 29.5% between FY06 and FY17. But the key factor behind such shifts in consumer choice has to be aspiration, perhaps best demonstrated by the instance of Tata’s Nano project. The project was founded on developing “the world’s cheapest car”, to cater to a market where buyers were expected to shift from bikes to their first car. But, the car failed to take off. Buyers chose larger used cars or new small cars or waited it out with their bikes over buying “the cheapest car”—something that former Tata group chairman Ratan Tata acknowledged in 2013, even though it had been his pet project.


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