India and China: A Comparative Analysis of Consumer Markets

India and China: A Comparative Analysis of Consumer Markets

Sub: Economy

Sec: National Income

• Population Dynamics:
  • India: Surpassed China in 2023 to become the world’s most populous country. India’s population is expected to continue growing and peak around 2060.
  • China: Facing a declining birth rate (6.4 births per 1,000 people), a low total fertility rate (~1%), and a negative population growth rate. China’s dependency ratio is projected to increase over time.
• Consumption Metrics:
• Private Final Consumption Expenditure (PFCE):
  • India: PFCE contributes over 58% to GDP, steadily increasing.
  • China: PFCE contributes only 38% to GDP and has been on a decline.
  • Aggregate PFCE: Despite China’s larger economy, its PFCE is only about 3.5 times that of India’s, indicating a larger contribution of consumption to India’s GDP.
• Consumption Trends:
• India:
  • PFCE grew from $1.64 trillion in 2018 to $2.10 trillion in 2022.
  • Despite marginal growth in aggregate and per-capita terms in 2022, India showed resilience.
• China:
  • PFCE increased significantly post-2020 but showed a decline in both aggregate and per-capita terms in 2022.
• Per Capita PFCE:
  • Despite India closing the gap in aggregate terms, China’s per capita PFCE increased marginally from ~3.0 times of India in 2018 to ~3.1 in 2022.
• PPP Adjustments:
  • China: PFCE approximately 1.5 times that of India in PPP terms, despite China’s GDP (PPP) being 2.5 times that of India.
  • India: Closed the PPP gap from ~1.58 in 2018 to ~1.55 in 2022, indicating significant growth despite exchange rate challenges.
• Expenditure Categories:
  • India: Higher spending on food, clothing, footwear, and transport, indicative of a developing market.
  • China: Higher spending on housing, white goods, recreation, education, and healthcare, indicative of a maturing market.
• Sectoral Expenditure:
  • India: Spends around half of what China spends on food, transport, and communication. Significant real growth rates in these categories often outperform China’s nominal growth rates.
• Future Prospects:
  • India’s Growing Consumer Base: Increasing spending potential enhances India’s appeal to foreign businesses.
  • China+1 Strategy: India’s expanding consumer market, coupled with geopolitical shifts, positions it as a favorable alternative or complement to China for foreign businesses.

Conclusion

India’s consumer market is characterized by a growing population, increasing consumer spending, and higher contributions to GDP from PFCE, making it a compelling destination for foreign businesses.

China’s market, while larger and more mature, faces demographic challenges and a declining consumption trend. The evolving dynamics in both countries suggest that India’s burgeoning consumer class and rising expenditure will significantly enhance its appeal as a preferred destination over China in the coming years.

The comparative analysis reveals that while China’s consumption market is larger in absolute terms, India’s consumer market is growing at a faster rate. India’s younger, expanding population and increasing consumer spending make it an attractive destination for foreign businesses. The data indicates a shift in global consumer dynamics, with India potentially becoming a preferred market over China due to its growth trajectory and consumer base expansion.

About China Plus One Strategy

• The China Plus One Strategy refers to the practice of multinational companies diversifying their supply chains by setting up operations in one or more additional countries outside of China.
• This strategy aims to reduce reliance on China and mitigate risks associated with concentrating manufacturing and supply chain operations in a single country.

Drivers of the Strategy:

• China-U.S. Trade War: Ongoing trade tensions and tariffs between China and the U.S. have increased the cost and complexity of doing business exclusively in China.
• COVID-19 Pandemic: The pandemic exposed vulnerabilities in global supply chains that were overly dependent on China, prompting companies to seek alternative locations to ensure business continuity.

Benefits:

• Risk Mitigation: Diversifying production sites helps companies avoid disruptions caused by geopolitical tensions, trade restrictions, or local crises.
• Cost Management: Shifting some operations to countries with lower labor and production costs can help companies manage expenses better.
• Market Access: Establishing a presence in multiple countries can provide better access to regional markets and reduce logistical challenges.

Preferred Destinations:

• Thailand
• Malaysia
• Vietnam

Attraction Strategies:

• These countries have implemented preferential policies to attract foreign investment, including:
  • Tax Incentives: Reduced corporate taxes and tax holidays for foreign investors.
  • Simplified Regulations: Streamlined procedures for setting up businesses.
  • Infrastructure Development: Investment in transportation, logistics, and industrial infrastructure to support manufacturing and export activities.
  • Skilled Workforce: Training programs to ensure the availability of skilled labor.

Impact on China:

• While companies are expanding their operations to other countries, they are not necessarily exiting China entirely. Instead, they are creating a more balanced and resilient supply chain by maintaining a significant presence in China while adding production capabilities elsewhere.

Conclusion:

• The China Plus One Strategy is a strategic response to global economic shifts, aiming to create more resilient and efficient supply chains.
• Countries like Thailand, Malaysia, and Vietnam are capitalizing on this trend by offering attractive conditions for foreign investment, thus becoming important hubs in the global manufacturing network.