in his journey to prosperity. In his late twenties, he decided to start a small business selling secondhand cars, which he ran alongside his day-to-day work as a driver. “I bought a rundown car and put it into shape,” he says. “I worked on it for nearly two months—working most nights from eight p.m. till midnight. I earned nearly 20,000 rupees ($430) on that deal.”
This was big money for Govind, and he has not looked back since. He started dealing in cars—buying, repairing, and reselling them. Last year, he estimates, he completed as many as twenty such deals. With more money in his pocket, he was able to leave his job as a full-time chauffeur and become a free agent, driving people for special occasions: many Indians drive their car in the city but hire a driver for long-distance trips.
Today, his annual income is more than 500,000 rupees—about $11,000, a tenfold increase in twenty years. Middle-class status symbols of success are all around him: a TV by Videocon, a refrigerator by Godrej, a Suzuki car, and a Honda motorcycle. And then there is his house: a three-bedroom house in a middle-class district. It says a lot about Govind—not only his position in society but also his hunger for more. He is always on the lookout for ways to boost his earnings. At one point in our meeting, he leaned over and offered to buy our car. “I will make you a good deal,” he said. We declined.
About twelve years ago, he bought a small plot of land, paying 100,000 rupees ($2,200). “No bank was willing to give money to a person like me at that time, so I borrowed small amounts from people I worked with and slowly paid them back over six years.” In 2008, he started building, seizing on a time when he believed that the prices of steel and cement were relatively low. He invested in the contents as well as the construction of the house. He is especially proud of the two air conditioners that he had installed. Manufactured by General, among the most expensive brands, they provide cool air in the hot Jaipur summers. “It is the best Japanese brand, so it has to be good quality,” he says. “It also uses less power than other brands.”
Now, the house is worth 6.2 million rupees, or $130,000—a fortune for Govind. But it is not luxurious, at least not in the Western sense of the word. It is a simple, single-story, rust-pink building. The bathroom is basic: there is a faucet, which is used to fill a bucket for a makeshift shower; a small mirror that he uses for shaving; and a basic toilet, but no tissue. Also, the power supply is intermittent—electricity is routinely cut in the afternoon between 1 p.m. and 3 p.m. It is for this reason that he bought a direct-cool refrigerator that can keep food cold for four hours without electricity. He also has a washerman, who comes to his house to hand-wash and air-dry his clothing.
To further boost his income, Govind joined Gold Souk, a marketing firm, as a part-time, commissioned sales rep. In the last three years, he has earned more than 1 million rupees ($21,000) in commissions. For all his newfound wealth, however, Govind is still hungry for more—for himself and for his two children.
He dreams of taking his family on holiday to Dubai and Singapore. He also dreams that his children will achieve more than he has and all that they wish for. “I spend about 5,000 rupees ($100) every month for their education. My son is doing well in school—he got 90 percent in his exams. I hope that he becomes an engineer. I don’t want him to go through the struggle that I had to go through.”
As Govind talks, he chews tobacco. He doesn’t smoke or drink alcohol. A serious man, he is rightly proud of his success, his hard work, and his ability, through his own endeavors, to pull himself up by his bootstraps. “When I was sixteen years old, I never thought that I would one day have a house of my own, a foreign-made car, and a motorcycle. But I’ve learned that with the right effort, one can achieve anything. I work fifteen to sixteen hours a day, seven days a week, and that’s why I have reached this point. But I will still do anything to earn more money. I want to double my income every three or four years. I want to make sure that I am able to buy a better house, send my son to a good college, and provide my family with everything that I never had.” (He does not talk about sending his daughter to college.)
He feels this passionately. When he said “double my income,” he repeated it over and over again, jabbing his finger for emphasis. He is a man on a mission.
Consumption Curves: How Middle-Class Consumers Spend Their Money
Food, homes, household appliances, transport, education, health care, clothing: these are the things that middle-class consumers, enriched with higher incomes, are starting to spend their money on as never before. The number one item on the family shopping list is food. But if this is striking, expect growth that is even more spectacular in other consumer categories as more and more people join the middle class.
The second-biggest item on middle-class consumers’ shopping list is housing and household appliances. In China, household appliances were the number one category that people wanted to trade up to in 2011, according to our annual survey: some 53 percent of consumers registered their intent to spend more on TVs, refrigerators, and computers.
These figures underscore Chinese and Indian consumers’ extraordinary optimism about their future. As described in chapter 1, some 39 percent of Chinese consumers and 34 percent of Indian consumers expressed an intention to trade up. By contrast, only 18 percent of Americans and 16 percent of Europeans did so.
Yet, as they grow richer, they become even more optimistic, and their spending behavior evolves in a distinct way. In years past, the evolution of people entering the middle class and rising to affluence was hard to observe because so few people made the journey from poverty to prosperity. In the last ten years, however, the transition has been dramatic, like a fast-forward video of social transformation.
To monitor this transition, we use a tool we call a consumption curve to help us to establish how consumers change their spending habits as they earn more money. Different types of products have differently shaped consumption curves—which shows that consumer demand for different products changes at a different rate as income changes. Take two types of beverage, for examples: water and fine wine. As people’s income increases, they do not actually consume that much more water, and so the consumption curve is fairly flat. By contrast, as a consumer enters the middle class, there is a tendency to drink better wine every now and then, as a special treat. Then, as the consumer becomes truly affluent, he or she begins to consume fine wine on a regular basis. So the consumption curve for wine is upward sloping, rising as income rises.
Using this tool, our analysis shows that once people have sufficient disposable income to enter the emerging middle class—typically when their household income reaches around $7,500 per year—they start spending on things that they could once only dream of having: fresh fruit and vegetables, manufactured ready-to-wear clothing, better housing.
Our research shows that consumers hit a second important threshold once they start to earn around $12,500 per year. At this point, they begin to invest in a first automobile, dabble with entry-price luxury goods and health foods, and spend more on beauty products, apparel and shoes, entertainment, and alcoholic drinks.
Then, as they become more affluent, with an annual income of $19,000, consumers cross another threshold. They start to spend money on travel, recreation, fancier household goods, and foods that are not everyday commodities, such as yogurt, chocolate, coffee, and wine.
For items such as household goods, the consumption curve is a sharply upward-sloping line, indicating a steady rise in spending as incomes rise (figures 2-4 and 2-5). Other consumer categories that rise steeply, if less so than household-related goods, are transport and communication, as well as education. Expenditures on health, another major category, only start to rise as people reach upper middle or upper class, with only the tail end of the consumption curve bending upward.
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