Calcutta
At the time of Independence in 1947 Calcutta rivalled Bombay for the title of India’s top business hub. Partly for historical reasons and partly thanks to unhelpful politics, the subsequent years have been less kind, and Calcutta was left behind.
Although the old colonial buildings remain, as do the vintage Hindustan Ambassador taxis, there are clear signs of change as the ‘City of Joy’ is dragged up with the juggernaut that is India’s resurgence. Shiny new air-conditioned retail outlets now compete with the teaming street stalls in the not so new “New Market” and Uber and Ola run Marutis and Hyundais are beginning to spread.
Improvements in Indian infrastructure can also be seen in the form of charities such as ‘Future Hope’, an organization which has been scooping desperate children off the streets and railway lines of Calcutta for 30 years, giving them an education and hope for the future. They still find as many vulnerable children on the streets today, but far less are likely to be starving and malnourished. The fight with poverty in India has far to go, especially compared with the dramatic progress made in China over the last four decades, but the fight with hunger is all but done.
Lucknow
Over the last decade the Indian population has grown by 14%, during which the production of cereals has grown by 20%, vegetables by 40%, milk by 63%, pulses by 71% and eggs by 74%. In Lucknow, the capital of Uttar Pradesh and India’s most populous state, The Tata Trust, the charitable arm of the renowned business group, has been helping farmers in some of the poorer counties with dramatic effect. Their sugarcane intensification package involves nothing more than careful incubation of young plants and better, more precise planting, and can result in over 60% better yields, 40% water saving and an 80% reduction in seed costs. Not to mention the possibility of intercropping with onions or potatoes, which can add Rs20,000 per acre additional income.
Collectively, this has some important ramifications. First and foremost, this clearly makes a huge difference to the livelihoods of the farmers who upgrade. Secondly, this and other initiatives are likely to turn India into a significant food exporter, as it already is in rice, despite its growing population, in both number and average appetite terms. Finally, the inflationary impact of food prices is likely to be subdued at best. Add to this the ongoing deflationary influence of technology, which we are enjoying across the world, and these lower rates of inflation in India are here to stay, with the structural downward trajectory of interest rates is likely to resume.
The flip side of this, as Prime Minister Modi is discovering, is that those who are not participating in the productivity gains mentioned above, which by the law of averages will be quite a few, only see lower prices and incomes and, with some inevitability, default on loans, and march through the streets. This is why, with elections nearing, the fiscal purse strings are being loosened with a very specific target of the rural sector, and nowhere are there more farmers than Uttar Pradesh, a key election battlefield.
Delhi
So, what of the “other half”, the urban dweller, the emerging middle class? The Boston Consulting Group divides the Indian population into Elite households (annual gross household income of more than Rs2mn, or about $28k), Affluent (over $14k pa) and Aspirers (over $7k pa). Beyond that are the ‘next billion’ cohort, which is actually growing more slowly, and the “strugglers” (below $2k) cohort which is expected to shrink sharply. Between 2016 and 2025 the number of Aspiring households is expected to increase by 1.5x, the Affluent by 1.9x and, most strikingly, the Elite by 2.4x. If Indian GDP manages to accelerate beyond the consensus 6-7%, which we think likely, these numbers will be understated.
For these upper cohorts, consumerism is the way forward and according to local consumer consultancy Leapfrog, is not meeting with any resistance. Modern retail and e-commerce are coming with all the disruption that this entails. Indians love to shop, but they also like a bargain, and remain very value conscious. Historic brands remain powerful, but as we have seen with Patanjali in recent years, there is room for new brands to emerge, especially if they offer value or reflect Indian traditional values or provide a healthier alternative. Online advertising and social media are levelling the playing field for newer entrants, as elsewhere. Fintech consumer finance is rampant, but perhaps reflects more about confidence and convenience than outright necessity. A better standard of living, convenience, quality housing, healthcare, experiences and travel are all aspirations of these consumers and provide a rich hunting ground for growth stock investors.
This is why we remain sanguine about property in India, especially in the major cities, despite what is a clearly troubling time for many players in the industry following last September’s mini credit crunch. In combination with the previous year’s Real Estate Regulatory Act, which has already upped compliance and capital requirements, this latest episode will undoubtedly lead to a rapid consolidation of the sector in favour of the larger players, as well as a shrinking supply further. According to Mumbai based Anarock Property Consultants, unsold inventory peaked in this cycle at around 800,000 units in 2016 and is now down to 680,000. The annual launch rate is already down to 170,000, from a peak of 500,000 in 2015, so depending on where you think equilibrium is, we are only a year or two away from this bottoming out. There has been no rush to buy in recent years, with prices in sensible places either flat or only modestly up (apart from the odd hotspot like Pune), but this may change as supply tightens. Lower interest rates and higher incomes are a helpful mix for affordability.
Finally, one of the most encouraging nuggets we have come across is from a Neilson survey of Indian consumer priorities. Among the usual suspects such as ‘improve my standard of living’, ‘provide for my children’ etc., “starting my own business” jumped from 11th place in the survey in 2015 to 6th place in 2017. People do not start businesses unless they have some confidence in their future. News that Prime Minister Modi will be pleased to hear as the May election approaches.
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