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[Music]
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Rupa thanks very much for joining us
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today thanks for having me you were a
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co-author on the report dreaming with
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bricks and I the first question I wanted
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to ask you is whether or not you feel
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that that report has stood the test of
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time I do it's been seven years actually
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since we first published it was in late
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2003 and you know for India in
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particular um the growth rates that we
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talked about kind of trend over the long
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run was 6 and a half% so I think if
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anything um what we've seen since then
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is that a lot of people think that
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that's probably too conservative um for
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China it's still sort of yet to be seen
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because we had sort of high Trend rates
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but they fall off pretty dramatically
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once you get to about 2017 2018 again
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because of China's demographics Brazil
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and Russia are a little bit more so I
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would say for China and India more than
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anything even as we've seen the global
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sort of downturn happen they've kind of
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taken up more market share um
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particularly when you look at things
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like Global demand and that was the
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inspiration for the the peace in the
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first place it was it wasn't to say
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these are four economies look at how
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they're going to grow it was to say that
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as Global sort of investors when you
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think about market demand um Global
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demand is going to shift toward these
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economies Brazil and Russia I think the
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projections for Trend growth were
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relatively um uh um conservative and so
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I think again they're about 3 and a
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half% over the long run and I think
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we're going to see that they're just
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going to be a little bit more because
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they're the other two China and India
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are more commodity um takers and the
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other commodity producers so you're
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going to see them particularly now kind
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of go through sort of different um ups
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and downs at different times so they're
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an interesting sort of basket together
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but I think the story if anything um the
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numbers have come out when you look
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between then and now more aggressive
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than we projected um but you're going to
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just see a lot of for Trend growth over
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such long period I think it's obviously
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we know that each year we're not going
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to hit it and I think we're going to see
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a lot of submerging and and some
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Sometimes some years where they
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overshoot but I think it's pretty much
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intact we wouldn't change anything and
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we hadn't right well if you were to if
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you were to write a new report today are
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there any other markets you'd squeeze
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into that
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acronym I think there's been lots of
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different variations of that acronym
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thrown around um I don't think so I mean
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the point of that was really to be
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representative and you know the the idea
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of taking those four markets were really
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that they were the four largest
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developing countries and we really
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wanted to say if we take big population
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economies that are growing relatively
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fast it's not rocket science but they're
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going to be able to change the face of
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global demand over the long run there's
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a whole set not really you can't really
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just go down to largest GDP but if you
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look at economies that have um
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relatively fast growth but big
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populations as well there's a Nexus of
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sort of another group um and Goldman
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Sachs has actually done a whole piece on
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um the next 11 so there are a whole set
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of other countries that are both large
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population we sort of ort of see you
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know things changing in terms of their
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reform processes demographics and so on
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that really kind of push them to be
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again big changers in terms of their
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weights in global demand over the next
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few decades okay well moving on to uh a
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more recent project you wrote a report
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the next Urban front tier 20 cities to
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watch in India uh can you tell us uh
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sort of the top trends you you noted in
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that report sure you know I think just
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as a little bit of background um in the
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role that I play now I had research for
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um for Everstone investment advisers and
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the research is still very longterm and
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it really focuses on demographics um but
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trying to look beyond the headline
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demographic numbers and really trying to
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see over the long run what structural
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changes are going to define the economy
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so um urbanization is one um that we
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think is going to be a big theme that
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everyone has talked about a lot but
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actually in India urbanization has
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played out in a very different way to
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what we've seen in China um you've
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actually seen urbanization peak in the
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1970s the pace of urbanization and it's
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since then fallen off um in India in
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India so in between 2005 and 2010 we
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think we're going to start to see that
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inflection point sort of change and
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we're going to see an an increase again
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um but what we wanted to say with this
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uh most recent paper was that it's
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really the next sort of coming Trend
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that when it happens to India it's
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really going to affect global
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urbanization patterns we think about on
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very conservative estimates about 380
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million people are going to be added to
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India's Urban spaces over the next few
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decades so that's more than the entire
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population of the us sort of moving into
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uh into urban India so that's going to
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be one of the most defining changes that
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we have yet to see um and even when you
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look now at what's happened any growth
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that we have gotten um in urban spaces
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it's largely been due to natural
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increase so people within cities having
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kids we haven't seen migration take off
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um either in the way that it has been
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hyped up in the press or in the media or
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um when you just look at social issues
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and what's taking place I think there's
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a lot of hype around it but we haven't
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seen it on the ground tap to the degree
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um that you see it talked about in the
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papers and it hasn't taken place to the
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degree that we've seen in other uh parts
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of the region so we have yet to see that
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happen but that's going to be a a huge
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change when we did this paper we um
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partnered with the National Council of
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Applied economic research because we
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really wanted to say you know no one
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understands first of all everyone thinks
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this process is just happening to the
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country and for policy um either we're
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just going to let it happen to us or
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we're going to try to stop it that's
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almost been the up till now up till
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recently almost been the kind of
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attitude towards it and we wanted to say
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look this is a process that is going to
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happen um could be hugely beneficial to
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the economy in terms of providing an
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outlet for semiskilled labor um to be
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able to find pockets of employment but
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we need to understand how the process is
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actually occurring on the ground so we
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try to take the survey that NC does
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which basically looks at income
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expenditure patterns across India um and
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and try to look at the top 20 cities to
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see how these things evolve and you
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really get quite interesting patterns
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you know for India anytime you talk
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about averages um it's really masking
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these huge swings so averages mean very
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little um so when you look at anything
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uh from uh the percentage that
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households spend uh of their income just
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on on average uh spending it goes from
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you know houses in Mumbai and alabad
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spending about half of their income um
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every year all the way up to if you go
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to a BAL and a jaland jolander they
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spend 75% of their income so you get
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very big changes which has implications
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not necessarily income that matters but
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it's almost um you know different sort
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of uh uh spending behaviors as you go
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across geographies that really determine
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um what's happening so there might be
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these smaller cities um might not be as
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big as the 5 million plus cities might
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be a million or or or just under um and
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they don't have income levels that are
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as high as the biggest cities but they
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just spend a lot more so what you're
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seeing is that in some small towns
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consumer spending patterns are actually
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evolving more quickly so there are some
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deeper markets for certain areas um you
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know
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well I think a lot of it has to do with
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you know India is not by any means a
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homogeneous Market it's a bunch of
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heterogeneous markets that have a lot to
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do with um cultural patterns um with
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regards to spending so it's not just as
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your income Rises you instantly see
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Evolution towards certain things is
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there an explosion of credit for example
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that's happening again it you know what
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you've seen for credit is that um
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there's probably a lot more penetration
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than people um expect in tier 2 cities
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so the cities I was just talking about
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were tier three tier two which again are
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big demographics probably just under
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between one million and five million um
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and uh and they're kind of the next big
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pocket for sectors that are kind of
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geared towards demographic so food
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apparel financial services so these guys
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actually are pretty um some of them it's
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very idiosyncratic but you'll get some
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tier tier 2 cities that are very well
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penetrated some tier one cities so these
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5 million plus cities that we always
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talk about um that actually aren't that
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there's still a lot of legs to go for
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the financial sort of penetration story
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to play out particular particularly with
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respect to credit so you get some of
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these when you look at the highest
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penetration they'll be these tier 2
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cities that are the highest so again
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it's very it you can't really go by
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large sads to to pick out where you're
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you know what city you're going to to
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penetrate you really need to look
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individually because there are a lot of
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idiosyncratic patterns what would you
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say are the are the biggest changes
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you've seen in consumer
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Behavior you know I think um again when
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you go back to the demographics that are
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driving things you basically what we see
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for India before I get to the
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demographics is that we're at when you
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look at India relative to the rest of
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the bricks we're at about um you know
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just over $1,000 per head so we're less
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than half of the next highest brick
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which is China so what our consumer
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spending profiles look very different
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even if we're in the same bracket of the
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bricks we're at this point where we're
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just entering sort of this sweet spot
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when you get to about $1,500 per head um
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to $3,000 per head where you get um um
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for an increase in income you start to
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get a rapid sort of increase in
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absorption of basic consumer durable so
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we're still getting to that point where
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you start to see from televisions um you
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know cars and so on that big sort of
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s-shaped curve we're just at the
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beginning of it so you have that
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happening across the economy I think but
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um there are also things that are
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structurally changing that once they
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happen they don't you know you can't
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reverse them um and one big thing is
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women are going to work and I think as
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that happens we've started to see um
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between 2000 and 2005
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um when you cut employment patterns by
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geography by age you don't see any
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changes the only big change you see is
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that there's been a rise in in the
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participation rate of women and that's
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big because when you go as far back in
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the data back to the 1980s as we have it
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participation rates have been low and
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they've been falling so this is the
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first time that we see a rise and it's a
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pretty significant rise and that has
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really influenced um at least in urban
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India um because that's largely where we
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see the wage and and salary employment
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take place um that's kind of
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um sparked a big shift in terms of how
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people consume so you see where
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households where women have started
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going to work a big increase in
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financial services any spending on
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children whether it's clothes toys
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education that's a huge Rise um Personal
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Care uh and and things like
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Transportation so I think there are
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certain trends that are happening that
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again are pretty longterm and that has
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held the country pretty well throughout
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the the last sort of downturn that we've
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seen and are savings down would you say
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now no savings actually have veren yeah
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household savings ofen so again I think
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we have a lot of we have a lot of um
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sort of propellers I think for uh for
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the economy to go forward particularly
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with respect to again when you look at
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demographics our savings rates are just
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they're rise they're poised to rise and
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and they will rise for quite a while
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going forward and we're seeing that
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happen in the data which hopefully will
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uh will help our investment rates as
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well uh in light of all the the
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potential Urban growth how do you see uh
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rural India fairing so you know we've it
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it's been an interesting balance of the
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economy throughout the last two years
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you know when um you know when the fall
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of 2008 hit um middle income sort of
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consumption tanked tanked is you know
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that's pretty dramatic because for India
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at our lowest our trough for GDP growth
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was 5.8% so the markets took a huge hit
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but in terms of real activity um we
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still stayed pretty strong but you did
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see a dip in in Middle um middle income
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sort of consumption but at that time
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actually because beforehand we had a
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relatively um good Monsoon rural
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spending um stayed pretty healthy not
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even just healthy it was pretty robust
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so when you look at fast moving consumer
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goods for example you saw um rises in
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consumption for these kinds of goods um
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much higher than people expected even
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taking into account or adjusting for the
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downturn so um so the rural sort of
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spending story stayed very healthy and
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then by the time um 2009 rolled around
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you sort of Saw um the manufacturing
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sector revive we saw GDP sort of get its
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its footing back um you saw middle
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income consumption actually recover so
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there was about two quarters where we
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saw a dip and then and then we we saw it
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kind of revive by that point the
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monsoons started to play into people
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psychology so spending in in rural India
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kind of was rained back a little bit so
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we've had sort of this you know for want
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of a better word sort of a balancing
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where kind of the rural consumer really
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took up the gauntlet in 2008 early 2009
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and then this year what we see going
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into um uh into the coming year it's
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really the return of the urban consumer
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well looking looking ahead five or 10
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years what would the composite of the
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urban consumer look like again I think
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you know for India it's so difficult
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because it's you know to basically cut
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it AC yeah it it it it depends where you
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are and what city you're talking about
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um you know I think for when you looked
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at um overall kind of uh um spending we
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saw mid we saw these top 20 cities
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really account for um about100 million
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of um of consumer
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spending um in 200 uh
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627 um and a third of it was devoted to
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to food but again that masks if you go
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to coin bethor there was a much lower
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share spent on food a much higher share
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spent on health um I think that share is
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going to continue to shrink um of food
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food and kind of move towards um food uh
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to clothing to um personal care to
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higher value added Services um but we're
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that that change is happening very uh
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very differently as you move across
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geographies and so does the report or
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would you make recommendations to
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companies in terms of how they can
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approach the Indian consumer it sounds
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like it's a very granular thing to
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degree it's quite a granular thing um
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you know and I think that uh the thing
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is is that for India relative to China
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the thing is is that India has a huge
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amount of Demand right close to 60% of
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our GDP um is composed of of demand
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consumption private final consumption
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expenditure so um we have a very
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different sort of composite of our
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economy relative to let's say a China so
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there's a huge amount of demand the
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issue is that we haven't figured out our
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supply whereas in China Supply is
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completely figured out and trying to
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stimulate demand is more the issue so
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you know everything I think there's
00:14:30
demand for many things but companies
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that stay strong have really figured out
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how they're going to get consistent
00:14:36
Supply over the long run because you see
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a lot of Products that come to Market
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and they're successful for a year or two
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years and then they disappear so you
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know I think the real important sort of
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thing is to to make sure that the best
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companies really stay capitalized um and
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figure out a a a long-term sort of
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Supply strategy um and uh and if they
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can do that uh you'll find that there is
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demand for for good quality um products
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but I think there's really hard it's
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very hard for companies to have stamina
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in the Indian market just to figure out
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uh the logistics in the supply chain
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that's the biggest issue great well
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thank you very much for speaking with us
00:15:11
today thank you
