Liliput Land
Liliput Land snippets, Interesting find.
Hi.
Reading time: About 7 minutes
Liliput Land
Liliput Land is a wonderful book on the consumer story of India. Over the last few years there has been a lot of talk about how India is growing, this book speaks about the C in the C+I+G of the GDP. Indian consumers are unique and this book has some interesting things to know whether you run a business or just want to know exactly how India is consuming.
“It is amply proven now that the Indian market will never become like ‘someplace else, somewhere else’.” - Liliput Land
Different ‘Consumer’ India
“Indian consumer market, contrary to expectations, will not transform into the familiar beautiful swan of Western developed markets; instead, it has transformed into its own version of a big, valuable ugly duckling.” - Liliput Land
This is a very interesting table. India has 31mn rich households. Which make up a GDP of 1.2trillion. In comparison the Upper middle class which is comprised of 62million households make up for a GDP of 1tn. The balance 216 million households make up for a GDP equivalent to the rich of 1.2 trillion.
This has a very simple takeaway in my eyes. India’s rich is concentrated and it contributes the same amount to the GDP as the middle and lower class while being significantly lower in number.
As a business owner though the takeaway is interesting. The number of customers you would have to serve are higher in the lower segment but the size of the market is still really big. A 1.2 trillion size.
“When told that even the richest 10 per cent of Indian households earned just Rs 21.6 lakh per annum in 2021 (details of how this number is derived follow later in this chapter), most readers will tend to be incredulous and unhappy.
•This shows that if it were a country, India’s richest 10 per cent of households would have a per capita GDP rank of around 81 in the world, a total GDP rank of around 19 and a population rank of around 5.
•However, 10 per cent of India adds up to a population that is the size of Mexico.
•Therefore, when BMW says India is the third largest country for its cars it does not mean India is the third richest country in the world; rather, it reflects that a tiny share of India’s large population is greater than a sizeable share of the small population in its other markets
•iPhone, in the first half of 2023, is reported to have a (small) market share of 5.1 per cent of India’s smartphone market but this translates to about 4 per cent of iPhone’s global market.” - Liliput Land.
These are mind boggling numbers.
“(Q5) households that is actually India’s ‘middle class’ in that it conforms to the mental model that most marketers have when they target India’s middle class. Contrary to what many people assume, they are scattered everywhere, and half of them live in rural India.”
As we can see when we go below Q3 we start seeing that these people are having a negative surplus. These are the people that government schemes are targeted at.During times like COVID which needed people to eat into their savings they could not which set them back a few years whereas the top quartile could cope and actually ended up thriving.
Consumer durables are not penetrated to the extent that they should be. There is still a huge area for growth. The lower quartiles where if you notice there are goods like refrigerator, two wheelers, mixer, etc which are more productive than goods which are comforting like AC, car, etc. The lower quartile of households prefer productive over comforting.
Most of the people in India are self employed or casual labourers who have irregular incomes.
“India has 308 million families, less than 10% of whose chief wage earners are employed formally, and an even smaller percentage are employed by listed companies (of which there are only about 7500 in India). 33% of Indian households are dependent on casual labour and India’s labour force is a whopping 540 million with growth coming from the villages. So one million jobs added is definitely a million jobs more than before, and good news, but it doesn’t even remotely transform the quality of employment in India and give rise to a whole new genre of consumption.” - Liliput Land
Reality of Urban and Rural India
“About half of the richest 20 per cent of households is evenly spread across rural India. As much as 17 per cent of this group are in the agricultural business, most likely owners of large tracts of land and enjoying the benefits of non-taxable agricultural income. Only 22 per cent live in metros.”- Liliput Land
“Rural India, which is poorer than urban India, laps up SUVs and large-screen televisions. This is because half of India’s richest 20 per cent of families live in rural India, while 70–80 per cent of India’s poor live in rural India.” - Liliput Land
“While, 36% of urban household account for 47% of income…the lines between urban and rural are blurring as developed rural (categorized as rural) areas seem to have better income profile than certain tier 1 / tier 2 urban centres.”- Liliput Land
Rural India houses the most number of people in India. As there is more connectivity built in through roads there is a huge expectation that the people in Rural India can connect with the small towns and adopt a similar culture and lifestyle.
Something we cannot ignore is that Rural India is huge in number.
Demographics
India is said to have the best demographics because of having the lowest median age. This is factually correct but the question we fail to ask is what is the profile of the majority of these young Gen Z, Gen Y or millenials?
“Overwhelmingly young, but nowhere near as rich as we imagine the world’s fifth-largest economy to be—low on formal education, high on digital ability, mostly informally employed and low-skilled. The fact that over half of Indian Gen Y or Z or millennials are rural and have very modest incomes and old-fashioned dreams of a stable government job is also a blind spot kept blind in discussion on how Gen Y or Z are totally different from the generations before them and will adopt 'global' consumption practises.” - Liliput Land
Middle Class India
“India is still quite some way off from having a genuine middle class that can power its economy. Middle India, the middle 60 % of households in the middle of the income spectrum, should have been the genuine middle class of India and has been neglected. India's future lies in building a genuine middle class several times larger than it is now. Imagine the impact on the economy if the number was three times what it is now.
Why is the middle class so stunted in India? We believe that it is both a cause and consequence of the widespread Informal sector, which is commonly estimated to account for 90% of employment, generating only one third of the value added in the economy. It is huge, with limited efficiency because of its many constraints and is a low productivity trap that chokes off the formation of a genuine middle class.” - Liliput Land
Key takeaways
Indian Consumer is a very unique consumer, will never be the same as the western consumer.
India is huge in number and concentrated in wealth. Rural India with lower per capita also makes a significant market due to size.
Indians prefer productive items over comforting items. Even more so in Rural areas.
India’s demographics such as low median age is irrelevant if half of them live in rural with dreams like getting government jobs.
Lower Income class has no savings. This impacted them badly during COVID increasing the income disparity.
I suggest you read the entire book as this is a very short summary which does not cover the entire book. These are simply some snippets which are of great value. You can buy it here.
I am also planning on doing an audio post. Please do vote if you think I should
Interesting find
Amazon’s 1997 letter to shareholders. This is something I have found to be a real value add. I suggest you read every single Bezos letter. He built one of the best companies in the world and he built it fast. If you want to learn business there is a lot of value to be learnt by reading reports.
Thank you for reading,
Samvit.