Don't Overlook India's Consumer Market for China's

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Over 80% of the poverty reduction that has taken place in China occurred during the first 10 years of reform, from 1978 to 1988. (The current state-led development approach began after 1991.) Although per capita incomes have risen since then, an estimated 400 million people, mainly rural residents, have seen net income stagnate or decline over the past decade. Despite so much spectacular growth, research by Yasheng Huang estimates that absolute poverty and illiteracy have actually doubled since 2000.

Villagers Buy Bharti, Reliance, Tata

In India, both of these have halved. Starting from a lower base, the urban-rural income gap has slowly but steadily declined since the early 1990s. Over the past decade, economic growth in rural India has outpaced growth in urban areas by almost 40%. Rural India now accounts for half the country's GDP, rising from 41% in 1982 and 46% in 1993. In contrast, World Bank studies show that rural China accounts for only a third of the country's GDP and generates only 15% of China's GDP growth. Agriculture in rural India now accounts for merely half of rural GDP—and is falling. Agriculture was responsible for around 72% of rural GDP in the 1970s and 64% of it in the '80s. This means a balanced economy is developing in rural India, with rapid growth in nonfarm sectors such as manufacturing and services. Indeed, rural India is responsible for around two thirds of overall GDP growth and 60% of national demand. In contrast to China's countryside population, rural Indians do not have to migrate to urban areas to earn a better living.

Indian companies have long targeted and benefited from the rise of the low-end Indian consumer. Professor Jagmohan Singh Raju at the University of Pennsylvania's Wharton School of Business points out that every major Indian consumer company knows it cannot build a brand presence in India without a strategy for reaching the villages. Having to engage with village-level consumers means that Indian companies arguably lead the world in coming up with innovative products and pricing strategies for the low-income segment. For example, Bharti (BHARTI:IN) has offered the world's lowest calling rates, Reliance (RIL:IN) has sold the world's cheapest handsets, and Tata (TTMT:IN) has offered the world's cheapest car. The marketing and pricing strategies for these products are tailor-made for the rising masses in developing countries. Unlike China's heavily fragmented and poorly branded low-end consumer environment, there is already a well-developed consumer brand marketplace among India's rising poor.

For Western brands chasing the luxury market, both China and India offer abundant opportunities. But when it comes to selling to the mass low-end consumer market made up of hundreds of millions of urban and rural residents, it might be a better bet to look to India, rather than China.

John Lee is a foreign policy fellow at the Center for Independent Studies in Sydney, Australia, and a visiting fellow at the Hudson Institute in Washington, D.C. He is the author of Will China Fail? (CIS, 2009).

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