" I strongly believe that India has a lot of latest entrepreneurial energy, which needs to be harnessed so that we become a nation of job givers, more than job seekers. " -Shri. Narendra Modi, Honourable Prime Minister of India.
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Introduction

India's demographic profile predominantly consists of young population which is increasingly turning urban. From a foreign investors’ point of view, it is an attractive proposition with several long term opportunities. The Government of India too has focussed on urban development in the country with specific programs such as smart cities and many more. A large and growing middle class, prominent in such urban centres, is not only increasingly consuming higher end goods and services but also redefining the luxury market.

Significantly, India led the global Consumer Confidence Index in the quarter ended June 30, 2015, followed by the Philippines and Indonesia, according to market researcher Nielsen. Consumer confidence in urban India rose to 131 in the June 2015 quarter, a one-point rise over the preceding three months. This was the fifth quarter in a row that India led the index. The increased consumer sentiment is also aided by falling inflation rates. The improvement in economic environment and consumer sentiment due to development initiatives led by the new government has played its part in high consumer confidence index. The increase in confidence is seen across sectors, with the packaged consumer goods sector poised to grow in double digits in 2015.

As per a McKinsey Global Institute (MGI) report, India's urban population is expected to touch 590 million in 2030, from 340 million in 2008. This increase in growth is expected to lead to several positive consequences such as abundant employment opportunities and creation of new markets due to untapped demands of an increasingly urban population.

Urban expansion is also anticipated to take place at a rapid rate. For instance, in the period 1971-2008, the country's urban population increased by 230 million; the addition of the next 250 million will likely take place in half that time.

Market Size

India’s urban population increase to 38 per cent by 2026, compared to in the country, which is 28 per cent in 2001 as per Census 2001. The growth in urban population is estimated to make up for over two-thirds (67 per cent) of total population increase by 2026. Out of the total population increase of 371 million during 2001-2026 in India, the increase in urban population is expected to be 249 million.

Online retailing, both direct and through channels such as eBay, will grow threefold and become a Rs 50,000 crore (US$ 7.5 billion) industry by 2016, increasing at 50-55 per cent annually, as per Crisil. By 2030, cities will generate 70 per cent of net new jobs creation, more than 70 per cent of the country's gross domestic product (GDP), and drive a fourfold increase of per capita income across India, as per research by McKinsey & Company.

The importance of rapidly-growing metro areas is brought out by the fact that urban areas drive national growth to a significant extent. As of 2013, six Indian cities contributed approximately 9.5 per cent of the country’s gross domestic product (GDP). In addition, all six cities have grown their GDPs faster than India in the period FY 2000-14.

Key Developments

Companies and a new generation of entrepreneurs are aiming to tap into unmet needs of urban population. The emergence and rapid growth of app-based cab service companies such as Uber and Ola are examples in the transportation sector. Similarly, several internet and mobile based services – from grocery deliveries to finding doctors – are all trying hard to secure a foothold in the high potential urban market. Apart from basic services, several niche players with designer products and premium offerings are also trying hard to establish themselves in the urban consumer market. The growing customer base for luxury products coupled with the awareness of international labels and discounts are driving the business of premium products online.

  • Amazon India has launched its ‘Crafted in India’ online store and successfully expanded its designer wear store in India as part of its strategy to customise offering for individuals.
  • US-based Kellogg’s, the world's largest cereal maker, has announced that it will set up its first Research and Development (R&D) centre in India by the end of 2015.
  • Chinese pro audio systems major Lax has tied up with Pixel Display India Pvt Ltd and plans to set up a Research and Development (R&D) centre followed by a manufacturing unit for US$ 10 million in Tamil Nadu over the next three years.
  • US apparel retailer GAP has launched its first store in India with its Indian franchisee Arvind Lifestyle Brands. It is targeting Rs 1,000 crore (US$ 150 million) revenue from the brand in 5-6 years as it readies to debut in the country.
  • US-based fitness-tracking device maker Fitbit Inc. expects India to be among its top five markets in the next one to two years led by strong demand for health monitoring devices in the country.
  • World’s leading sports car maker, Ferrari SpA, will open two new dealerships in Mumbai and Delhi and introduce its California T model for US$ 512,500. This marks supercar maker’s return to India.
  • Custo Barcelona, the Spanish apparel brand of CustoDalmau, has entered India. The brand has started its operations in India with two stores, in Delhi and Mumbai, and will subsequently expand over a period. Its sale will be limited to exclusive outlets, and there will be no multi-brand retailing.
  • Luxury British brand Triumph Motorcycles has globally recorded its highest sales figures in 30 years reaching a volume of 54,432 units with India contributing sale of 1,300 bikes in the first year of its inception here. Paul Stroud, Director Sales & Marketing, Triumph Motorcycles India said “Growing markets like India and Brazil have been extremely critical and gratifying at the same time and they have contributed substantially to our overall figures.”
  • Marriott International's world-class luxury hotel brand, JW Marriott Hotels & Resorts, is planning to open one hotel in India by summer 2015 bringing the brand's Asia-Pacific portfolio to 28 hotels and resorts with seven in India.
  • America’s largest speciality retailer of children’s apparel and accessories, The Children’s Place is staging an entry into the India market with the opening of its first 2,500 sq. ft. store in Bengaluru’s Orion Mall.

Government Initiatives

Prime Minister Mr Narendra Modi had launched three government flagship schemes in June, 2015 aimed at changing the face of urban India—Smart Cities mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing for All mission with an expected expenditure of around Rs 4 trillion (US$ 60 billion) over the next few years. The government has completed stage one of the Smart Cities Mission worth Rs 1 trillion (US$ 15 billion) by shortlisting 100 cities across India for the plan. The Government of India plans to spend Rs 50,000 crore (US$ 7.5 billion) to develop 100 smart cities in the country, with each selected city to receive assistance of Rs 100 crore (US$ 15 million) per year for five years.

The Government of India will announce the first batch of 20 smart cities in January 2016, pushing ahead with its urban development goals.

The Union Cabinet has given its approval for signing of a Memorandum of Understanding (MOU) between the Ministry of Urban Development and Bloomberg Philanthropies (BP) of New York to support the development of Smart Cities. Under the proposal, BP will become the Knowledge Partner to support the development and execution of Cities Challenge under the Smart Cities Mission.

The Ministry of Urban Development has approved an investment of Rs 19,170 crore (US$ 2.96 billion) for improving basic urban infrastructure in 474 cities in 18 states and Union Territories (UT) under Atal Mission for Urban Rejuvenation and Transformation (AMRUT) for FY 2015-16.

The Ministry of Urban Development has received Smart City Plans for 15 cities from six states and the Union Territory (UT) of Puducherry, with the state of Rajasthan taking the lead by submitting proposals for four cities entailing investments worth Rs 6,457 crore (US$ 969 million) over a period of five years.

Five states - Kerala, Madhya Pradesh, Gujarat, Odisha and Mizoram – have taken the lead to address the issue of water logging in monsoon season with plans to invest Rs 242 crore (US$ 36.3 million) across 25 cities under Atal Mission for Rejuvenation and Urban Transformation (AMRUT).

France has announced a commitment of € 2 billion (US$ 2.17 billion) to convert Chandigarh, Nagpur and Puducherry into smart cities, thereby becoming the first nation to specify a financial commitment towards the government’s ‘Smart City’ initiative.

The total population of the proposed Smart Cities to receive benefits from the project is about 120 million accounting for 35 per cent of country’s total urban population as per the 2011 census.

Road Ahead

Growing income levels, a youthful demographic and increasing preference for brands in urban areas are driving urban market growth. Already the urban markets are witnessing steady growth in traditional goods and services such as fast moving consumer goods. The country is also set to become a vital market for wearable technology such as smart watches and fitness monitors, driven by consumer interest in such gadgets and the growth of spending on consumer durables.

Exchange Rate Used: INR 1 = US$ 0.015 as on December 17, 2015

References: Media Reports, Press releases, TSMG report, MGI report, Press Information Bureau (PIB)

Disclaimer: ECI is not responsible for any errors in the information