India, and the multiple Indias within

After three months of being back, I'm starting to appreciate the nuances of today's India a little bit better. My experiences during this time have seen the full range, from jarring to exhilarating. India often feels like the old (the place where I grew up) and yet sometimes feels unfamiliar. But it's been good to soak it all in; both as a native and as a newbie.

A recent conversation with a friend about the contradictions that is 'the India opportunity' prompted this article.

What India (economy) looks like from the outside

GDP - $3.6 trillion

3rd largest in the world. It’s seen mind boggling 3x growth from $1.2 tn in 2009.

Population - 1.4 billion

Largest in the world (surpassing China this year). And very young; 52% under 30 yrs, 67% in working age (15-64 yrs), only 10% over 70.

Per capita income - $2.5k

Bottom bracket globally, although it's $9k on 'purchasing power parity' terms

PPP is real. My wife and I go to a breakfast joint here occasionally. We get dosas, filter coffee and fresh juice there, for the price of a coffee (at the cafe that I'd go to) in the UK.

What India (economy) is on the inside

Let's remember, India is large, diverse and complex:

• 7th largest by land area
• 28 states and 8 union territories, with 22 official languages
• 650k villages; 65% Indians live in rural areas

Economically, the country has seen a fair bit of progress in the last 15 years. Let's use 2 lenses:

the move from Offline to Online

There are 300 million households in India. While the internet in its old avatar (i.e., home broadband) grew in the last decade to 25 million households (8% of India), mobile internet spread like wildfire (70% coverage) during the same time.

In 2016, Reliance launched their telecom business Jio and slashed data prices (from $3 to 16 cents for 1 GB data).

“India and Indians cannot afford to be left behind,” Ambani (Chairman, Reliance) said at the launch presentation. “Today, India is ranked 155th in the world for mobile broadband internet access. Jio is conceived to change this.”

Fast forward to 2023,

• India remains amongst the cheapest in the world for data

• Data consumption naturally increased (100 times in 7 times); Indians consume more data per capita today (20 GB per month) than anywhere else
• Cheap smartphones flooded the market at the same time; There are 1.2 billion mobile phones in India today, of which 650 million are smart phones
• We embraced the online world; India has the highest number of active users (globally) on platforms like Facebook, Whatsapp and Youtube

and the move from Informal to Formal

A decade or so back, India was highly unbanked (KYC was near impossible for majority of the population due to a lack of verifiable credentials).

Aadhar (India's Digital Identity project launched in 2009) changed that. Today every Indian has a unique ID, and nearly 80% have bank accounts. Following on the heels of Aadhar, was the launch of UPI (India's free and interoperable real-time payments system) and GST (Goods and Services Tax, a uniform tax code replacing all prior regional tax systems) which brought more and more of India into the formal economy.

Today 250 million individuals and 50 million merchants use UPI. Tax collections post GST have grown at a faster pace than GDP growth.

But this is only one side of the story

Paraphrasing a well-known Indian entrepreneur:

When you launch a new app or a service in India, you can get world beating DAU (daily average users) and MAU (monthly average users) metrics. ARPU (average revenue per user) however tends to be significantly low.?Customers don't or can't pay for services.

Going back to the 2 lenses (that I used earlier), let me add some nuance:

• move from Offline to Online; While Indians are the largest users of free online platforms, very few pay for online services for e.g., only 40 million households (13%) subscribe to OTT platforms
• move from Informal to Formal; While 80% Indians have a bank account, only 30 million (< 3%) have access to a credit card to overcome cashflow issues and pay for everyday purchases and needs

Propensity to spend is not uniform across India

Take 2. India is large, diverse and complex.

The idea of multiple Indias within India, from an economic demarcation standpoint, first came to my attention when I heard the 'Return on India' podcast hosted by Romeen Sheth last year (the episode with Sajith Pai , Partner @ Blume Ventures ). Sajth explained how India is a country of economic contradictions and why homogenous macro statistics (GDP this, population that) don't paint a good enough picture.

India is in fact several Indias, namely:

1. India 1 – 110 million people, $10-12k income per capita, digital natives (watch OTT, purchase from Flipkart, Amazon). Think Mexico
2. India 2 - 100 million people, $3-4k income per capita, emerging India (Jio took them digital but they buy differently online e.g., using voice). Think Philippines
3. India 3 – 1,200 million people (rest of India), < $1k income per capita, limited to nil discretionary spend. Think sub-Saharan Africa (excluding South Africa)

And, if you peel the onion even further there's yet another sub-segment:

India 1a – 25-30 million people (upper end of India 1), $25-30k income per capita, English-fluent. Think cross of Poland and Taiwan

I was always aware of the economic disparities in India. That they were still so stark and extensive (in-spite of the economic progress), was a surprise to me. But having now spent more time on the ground, the patterns are too obvious to miss.

Let's take some stats that relate to discretionary spend and financial access:

• Number of credit card holders in India: 30-35 million
• Number of car owners: 25-30 million
• Number of iPhone owners: 40 million
• Number of investors in mutual funds: 35 million
• Number of people traveling abroad for tourism: 25 million (last 5 year period, including Covid years)

In each example, the numbers are in the same ball park i.e. 25-40 million people. A number similar to what Sajith was referring to as India 1a and India 1. It's the India that pays (and can pay) for discretionary services and goods. The India that can afford to make lifestyle choices and invest for the future.

It's easy to look at India from the outside and call it a massive market with 1.4 billion people. In reality, if as a startup you are building for the Indian consumer, today the paying market is centred around 100-200 million people. And even there, the per capita propensity to spend is a lot less than developed economies.

As the founder of an Indian insurance unicorn said (when asked what his company was about) and I'm paraphrasing here:

We are the protection destination for 100-200 million Indians.

There are however two sides to every coin

India hopes to become a developed country by 2047 and its GDP is expected to grow to $10 trillion by 2035.

The stars will need to align for that, and then some more including:

1. Aligning youth with opportunity: The demographic dividend could be wasted if the country lacks proper education, skilling and availability of jobs. (Over 700k Indian students moved abroad in 2022 for higher education)
2. Fixing the credit gap: Small & medium sized businesses are vital; 63 million?enterprises contributing 30% to India's GDP, 45% to manufacturing, 40% to exports, and employing most of the workforce. Only 15% of their working capital requirements is met by formal lending channels today
3. Building more large and sustainable businesses: India has over 6k listed companies (surprisingly, more than the US and China) and 100k registered startups (including 100+ unicorns). We need a lot more of them in manufacturing, tech, financial services, health, education and other areas
4. Getting more people into the formal economy: India's women are severely under-represented in the 'paid' economy (less than 20% in total and 3 times less than men). This needs to change
5. Creating fortune at the bottom of the pyramid: Most Indian startups are building for 100-200 million people. But there's a billion more waiting in the wings. 60% of India's GDP today comes from consumption; majority of which is people's spend on groceries and food. This mix will evolve to include more 'want' based spending, rather than just 'need' based spending as the economy grows (and India 1 & India 2 gradually grows into India 3)

India maybe the 3rd largest economy in the world, but most people don't yet use motorised transport for their commute to work. This is slowly shifting. While only 1% of households had cars in the 90s, today that number is 8% (over 3 million cars were sold in 2022 alone).

Traffic woes continue to grow in India's largest cities, and yet it's surprising when you realise that the country only has 33 million cars. This number is similar to that of the UK, which has 60 million people in comparison.

There are two ways to look at this stat (and the ones that I had shared earlier):

1. There are only 25-40 million people who; own cars, credit cards and iPhones; invest in mutual funds; and travel abroad OR
2. There are a billion more people who will want these in the future

How these Indias come together, could be the country's path to $10 trillion GDP and becoming a developed economy.

I hope you enjoyed reading this, please do share your thoughts and insights. In case of any factual inaccuracies, kindly let me know.