Indian Middle Class Purchasing Power Myth

Sometimes I am really surprised when I hear or read in the news that there is some strong 300 million, middle class consumer base in India who has almost same or comparable purchasing power as middle classes income group people in USA or in Europe.

Well to put it straight, I completely disagree and would like to say that there is no such 300 million, middle class consumer base in India who has purchasing power comparable to that in the middle income group of Europe or America at least till year 2008.

Also the spending power of middle and high income group Indians is highly overestimated by experts from eminent consulting organizations.

The reason for this is that people who make these reports sit in their five star offices without ever actually going out to the Indian marketplace. They never tried to look into the Indian consumer mind about their spending habits.

Let’s understand the myth of high purchasing power;
In India till now the total number of people who pay income tax is about only 31.5 million that is only about 3 % of the total Indian population.

India has 31.5 million taxpayers; In a country of over a billion people, only 31.5 million people pay taxes, and this is after the number of taxpayers has grown by nearly 11 percent between March 2002 and March 2006. Now in India people start paying tax only when their income goes above Rs 1,00,000 or £1250 per year ( £1 = 80 Rupee approx) ( this is the person income tax exemption limit till 2007 in India for men).

So as per Indian Govt Tax official estimate only about 3 % of Indians earn more than £1250 per year or about £100 per month. Now£100 per month is nowhere close to European or American middle class earning standard, than assumption that India have 30 % or 300 million middle class populations who have similar purchasing power as people in the USA or Europe??? At least I can’t understand.

The number of Indians who have the same purchasing power as European or American could be hardly 1% to 1.2% i.e. about 10 to 12 million only.

In fact according to a latest National Sample Survey, 60.5% of the Indian population was capable of spending only Rs 20 a day (0.25 pence approximately).

Not only that but this 10-12 million consumer of high income group is not located in the small pocket of India but all over India which is as large as whole Europe with crippled infrastructure which add to another problem of distribution.

So it is obvious that all the big Multi National Companies that enter into Indian retail market by looking at the sheer numbers of population face huge disappointment.

Issued in the interest of organisations, that are planning or interested in doing business in India.

The author Subodh Gupta has worked for about 12 years as an entrepreneur, an engineer, a guest professor to various MBA schools and about 4 years in the UK as a freelance trainer and consultant.

He has organized training workshops for various companies such as Oracle, International Data Corporation, Sapient, etc. in Delhi and London.

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