Inside India

The Indian consumer

One of the first fundamental discoveries about India once you get close to it is that India is very far from being anything close to a homogeneous country. It is rather a mosaic of many different ethnicities, cultures, religions, social groups and administrative nodes. There are 28 states (and 8 “Union territories”) with a high degree of administrative autonomy. There are 23 officially recognized languages and hundreds more spoken by small minorities (which is why two Indians picked at random have a 90% probability to speak different native languages). There are immensely rich people and immensely poor ones, often living not far from each other. This reality also translates to the economy. There are many economic realities and customer profiles. So the challenge for a foreign company or brand is not to understand “the Indian consumer” but rather to understand which piece of India they are meant to serve.


Sajith Pai, from the VC firm Blume Ventures, describes groups of Indian consumers in a way that I find very interesting. According to Pai there are 3 Indias when we look at types of consumer.


First, there is India 1, the wealthiest of the three groups, with about 110-120 million people and a GDP per capita of about $1,200. These are figures of population and GDP per capita equivalent to those of Mexico. The people in this group speak English fluently, look at Western culture in an aspirational manner and tend to concentrate in large Tier 1 cities. Then there is India 2, a group of about 100-110 million people with a GDP per capita of about $3,000. This is comparable to the size and wealth of the Philippines. Here there are people who mainly speak Hindi and/or local languages. The third group, India 3, is made of 1.2 billion people with an a GDP per capita of less than $1,500. These figures, again, comparable to the entire African continent, minus the richer countries such as South Africa and the ones on the northern coast. This group includes the majority of the rural population.


Two more groups round up this categorisation. The first is a subset of India 1. It is a smaller group of particularly wealthy 25 million people (call it “the 2%” or in Pai’s words “India 1 Alpha”) with a GDP per capita of $35,000, which is equivalent to Taiwan. And finally, there is the group that does not live in India, the Indian diaspora around the world, 1st generation immigrants that still maintain strong ties with the country (and we’re not even counting the 2nd generation, which also do have those ties). This group has about 18 million people (highest number of immigrants for any country) and worth including in the analysis because 1) it has a very high purchasing power (their annual remittances to India alone make up 3% of the country's total GDP and are larger than the entire Foreign Direct Investment amount) and 2) it still spends “Indian”. For example, this last year saw the release of the Bollywood blockbuster “Pathaan”, starring Shah Rukh Khan and a host of other top stars. The film made about $130 million in the box office, with $50 million (!) coming from markets outside India.  


So let’s recap. According to this framing, India, in macro-economic terms, is made of Mexico (with a Taiwan inside), the Philippines and almost the entire African continent. Plus an affluent 18 million plus living all over the world.


What distinguishes these groups? Almost everything. It is almost impossible to build a brand or product that appeals to all three Indias equally. They are too different. India1 has Western values, has been educated in the best institutions in the country or abroad and mostly speaks English at work and at home. India2 speaks local languages, is also well-educated and strives for moving upwards. India3 is much less educated and consists of manual and informal economy workers. India 1 buys brands and aspirations, India 2 is moving towards that and India 3 buys very little beyond basic necessities.


Right now, most of the economy is happening in India 1. Look at the graph below (Source: The Indus Valley Report, 2023, Blume Ventures) and you see how quickly 1.4 billion people become less than 100 million of actual regular digitally-connected consumers.




Some products are able to break through into India 2 and India 3 but although they show incredible growth, they also seem extremely hard to monetise (e.g., YouTube and other free digital content platforms such as Jio and Hotstar have close to 500 million users each). The hope of these products is in building a customer base that will yield profits once the consumers’ purchasing power increases and the average revenue per customer goes up.


Of course, there are other variables that create heterogenity in the consumer markets in India. Regional cultural differences are very significant, age groups show increasingly diverse behaviors, etc. Once you cross all those variables with each other, you get an amazingly rich tapestry of consumer profiles. Now more than ever, the first job of any company trying to sell something in India is to ask “Who is exactly our customer?”.