THE COLD REALITY ABOUT INDIA'S MIDDLE CLASS

Consumer firms may have to rein in expectations because the middle class has not grown on the scale it promised

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The world's largest maker of airconditioners (ACs) is the latest to bet big on the Indian market. In an interview with the Financial Times newspaper recently, the chief executive of Japan's Daikin, Masanori Togawa, said that India "would turn into a market as giant as China in the future, as the middle class and the wealthy are growing tremendously." The company, which is also a beneficiary of India's production-linked incentive (PLI) scheme, sees India as a major export hub and sees a tripling of products manufactured in India and exported elsewhere, by 2025.

In comparing the potential of the Indian market to that of China, due to the potential inherent in the spending power of the middle class, Togawa was echoing what many, equally optimistic chief executives have said before. There is certainly potential in the Indian market to grow, with Indian AC ownership in the mid-single digits and with average summer temperatures set to rise in the long term due to climate change.

But it has been apparent for some time that a bet on the rising size and spending potential of the Indian middle class is a risky bet, not just for white goods manufacturers like Daikin, but for a range of other companies, such as those in e-commerce, or more recently, online food or grocery delivery. While there has been scepticism for some time on the spending potential of the middle class, it is the next couple of years or so that will prove to be decisive in the fortunes of many such companies.

PERIOD OF RECKONING

Why is this? Firstly, 2022 is the first year covid-19 crisis, when the economy and society returned to a normality of sorts after the devastation of 2020-21. But even as the economy was in the process of recovering, the Ukraine crisis caused global commodity prices, and consequently inflation, to hit consumer budgets.