The Fortune at the Bottom of the Indian Pyramid
Wednesday, May 2, 2007
Companies can tap a market of Rs54.25 lakh crore (or Rs54.25 trillion, well above the country?s Gross Domestic Product) in India by catering to the needs of people who earn less than $3,000 (around Rs1,23,000) a year according to a study by World Resources Institute (WRI), a think tank that works on environmental issues, and the International Finance Corporation, the private lending arm of the World Bank.
The study, titled The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, has adjusted consumption for exchange rate and purchasing power parity while making its calculations. Energy, health, housing and financial services account for a large portion of the Rs54.25 trillion market.
The bottom of the pyramid (BOP) is a concept that was first popularized by management guru C.K. Prahalad, who said that companies could make a fortune if they could make products and offer services that were relevant to and could be afforded by the four billion people around the world who earn less than $1,500 (Rs 61,500) a year.
The WRI report says that 70% of Indians earn less than $1,500, and make up a potential market of Rs31.11 trillion (the number has been adjusted for purchasing power parity on the basis of data for 2005).
Purchasing power parity compares the real purchasing power of different local currencies in terms of a fixed basket of goods.
The report uses data from national household surveys in 110 countries to estimate the size of the global BOP market at $5 trillion (Rs205 lakh crore at the current exchange rate).
Estimates for India are based on the National Sample Survey.
?Most of our expenditure comes from the topmost income bracket or just about 10 million households. This can go up to a maximum of 20 million to 25 million in the next two or three years. So, it would take at least 15-20 years for the lowest 75 million to 80 million to evolve into meaningful spenders,? said Ajeet Singh Karan, a former private equity investor.
India and China, countries that are perceived by many to be future engines of global growth, account for almost half of the overall ?bottom of the pyramid?.
According to Allen L. Hammond, vice-president for innovation at WRI, ?this is an interesting coincidence?.
?Their success, especially India?s, in various experiments in selling to the poorest will become a model for many other nations,? he added.
Hammond also said that the private sector would do better not ?to run after India?s mythical middle class and focus on the poorest instead?.