The 'Indian Common Market': Rethinking growth beyond one India

India's next phase of consumption growth will be driven by treating large state economies as distinct markets, each requiring its own products, distribution strategy and consumer insight

During a meeting with the chief executive officer (CEO) of an FMCG company recently, he said something that struck me. The presenter was talking about expanding their category in the Indian market, when he mused: “What’s ‘Indian market’? I feel my business hasn’t even scratched the surface in Karnataka or Gujarat! Karnataka, for example, is the same population as France. It is growing fast in per capita income and are now comparable to a European country’s stage of prosperity not many years ago. Even so, our category penetration is not even 60 per cent! There’s so much work to do just here in Karnataka, in Kerala, in Gujarat and others, before even we talk about India or the rest of the world!”

 

 

It’s a powerful argument. Too often, businesses look at India as one large, homogenous market and attribute one number to it –  GDP, market size, potential, growth rate, etc. Or segment it, top-down, into rural/ urban, Tier 1, 2, 3 towns, etc.

 

Perhaps it is time to stop thinking of India as a single market that needs segmentation and instead think of it as an Indian Common Market: a collection of large, economically viable state markets, much like the way many businesses in Europe approach the European Common Market – as a group of distinct countries, each deserving its own strategy.

 

The implications are not just semantics. They have a profound impact.

 

Consider automobile ownership. Today, Gujarat has a comparable dollar GDP per capita as Italy in the 1970s. But car penetration is just 67 per 1,000 people vs Italy at that time of 190 per 1,000 people, almost three times higher! Karnataka has a similar dollar GDP per capita as Poland did in 2001. But new four-wheeler registrations in Poland at that time were about 8.6 per capita vs 4.5 in Karnataka today, almost twice!

 

Take white goods. Tamil Nadu and Telangana have reached income levels comparable with parts of Western Europe during the 1970s. Yet refrigerator ownership in these states is still only at about two-thirds of households, far below the near-universal penetration seen in the European countries at similar stages of development.

 

These comparisons are not intended to suggest that the higher benchmarks in Europe should directly be applied to these states. Challenges in infrastructure, urbanisation, education, financing, housing patterns, and cultural habits and preferences all may impede adoption. Equally, these states (and India as a whole) have advantages over European countries  at those times, like digital infrastructure, mobile commerce and technology diffusion. That would suggest penetration and consumption levels should be even greater!

 

The point is not that the numbers should be the same, but that the headroom for growth is much larger than many businesses assume, IF their approach changes.

 

To understand that better, let’s ask why European markets often achieve higher penetration levels at the same levels of income as some Indian states today.

 

One reason is that each European country was treated as a market in its own right, not as a subset of a 'European market'. Consumer research, product design, communication, distribution and retail were all built around local consumers rather than around an 'average European'.

 

That focus unlocked demand.

 

The development of the beauty care category in Europe illustrates this well. During the 1970s, skin cream usage in Germany was several times higher than in Italy, while lipstick penetration in France significantly exceeded Germany's. Similar incomes did not produce identical consumer behaviour because culture, aspirations and habits differed.

 

The lesson for businesses in India is obvious: different Indian states are not simply at different stages of development around an “Indian average”. They are fundamentally different markets.

 

Consumer preferences differ widely. The preferred taste of sambar masala in South India varies not just by state, but even by district or local area. Rice preferences change every few hundred kilometres. Fabric wash choices vary widely as water hardness varies from local area to local area. In apparel, men in coastal AP seem to have a disproportionate preference for Size 44 shirts compared to other markets, even for the same body structure!

 

These are not curiosities. They are commercial opportunities.

 

Historically, businesses had little choice but to treat India as one market. State markets were too small to justify differentiated products, communication, or distribution. Scale efficiencies favoured standardisation.

 

Today, many Indian states have reached a size where investing in deeper customer understanding, locally-designed value propositions, tailored portfolios and state-specific go-to-market strategies – a bottom-up approach – is no longer a luxury for businesses seeking faster growth. It is becoming a prerequisite!

 

The next decade’s winners will be businesses who re-frame their top-down approach and look at India, not as a unified  market segmented into smaller parts, but as a collection of massive local markets, each with their own needs and contexts, that add up to a whole.

 

Welcome to the ‘Indian Common Market’!

 

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(The author is Managing Partner at RedVent Strategy & Design Ltd)

 

Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper