India's New Super Rich Will Increasingly Come From Rural India

• <00:56> India's rural areas will drive the growth of super rich in the coming years even as India's middle class set to hit 715 million in seven years.
• <12:02> What indeed is the internationalisation of the rupee?
• <22:27> Hmm... Swiss will import more cheese than they export, more globalisation lessons
• <25:22> India goes deficit to surplus rains in days as high-intensity monsoon hits different parts of the country

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TRANSCRIPT

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it's Monday, the 10th of July and I'm Govindraj Ethiraj coming to you from Mumbai, India's financial capital and most rocking city in the world!

Our top reports for today

• India's rural areas will drive the growth of the super-rich in the coming years even as India's middle class is set to hit 715 million in 7 years.
• What indeed is the internationalisation of the rupee?
• Hmm..Swiss will import more cheese than they export, more globalisation lessons
• India goes deficit to surplus rains in days as high-intensity monsoon hits different parts of the country.

India's Booming Middle Class

India's middle class has been growing for a while. Based on this largely true presumption, a whole bunch of businesses have taken big bets on how they would consume and spend their incomes. The latest to join the party were all kinds of tech-enabled consumer-facing ventures funded by, well, venture capital.

A new report titled The Rise of India's Middle Class, which is built on responses from 40,000 households in 25 states, has projected that India's middle class will rise from 432 million people in 2020-21 to 715 million (47 per cent) in 2030-31.
The middle class as defined here, could be anywhere between Rs 5 lakh to Rs 30 lakh annually in household terms. Presumably, this is where the problem could be but we will come back to that later.
Significantly, the People's Research on India's Consumer Economy and India's Citizen Environment, or PRICE report also says that rural areas will drive the growth of India's Super rich households to 9.1 million by 2031.

It is expected to go further to over just over a billion by 2047 but in deference and regard to the views of several economists and investors I have interacted with, I try and avoid going too far out in the future.
In the next 7 years or so India will see a 5-fold increase in its super-rich households and significantly, a large chunk of the growth will come from rural areas.

Super rich households are those who earn more than Rs 2 crore annually and they are now 1.8 million or 18 lakh of them. Half of these super-rich live between Maharashtra ( a large state) and Delhi, a small state.

From a marketer's point of view, obviously, as the number of middle class households rise, the demand for higher quality or priced products and services increases. We are already seeing a premiumisation in the economy, for products ranging from cars, consumer appliances to houses.

The worrying part of course is the difference between the lowest income households and their more well-to-do counterparts, as the average all-India household income figure stands at Rs. 5.43 lakh in 2020-21, while the poor have to struggle with maybe Rs 78,000 to Rs 278,000 per year.

To understand more about what this report found and more importantly, how to read the findings, I reached out to Dr Rajesh Shukla, CEO of People's Research on India's Economy. Dr Shukla incidentally spent over 16 years earlier at National Council for Applied Economic Research including as Chief Statistician.
I began by asking him to describe the findings.
DR RAJESH SHUKLA

Internationalisation Of Rupee

If you trade internationally, would you not like a situation wherein the terms of trade with your counterpart are pegged in rupees and not in dollars and you are not watching dollar-rupee movements, praying that some overnight depreciation does not jack up the cost of your imports.

All this could change if the rupee is internationalised. And like in most such aspirational projects, a committee from the Reserve Bank has just pronounced that we could do it.

A inter-departmental group from the RBI has said yes, the Indian rupee has the potential to become an internationalised currency. It also suggests a pathway with several dos and don'ts and getting into all of them at this somewhat early stage may not be worthwhile.

But why internationalisation you might ask.

Well, the answer is that partly because there is much global uncertainty, including after the Ukraine war and buying oil from Russia.

More likely, at least I suspect, many folks in policy land are feeling that we have acquired the might and muscle to now trade on our terms rather than be held hostage to the dollar. By the way, the Chinese are also trying to make the RMB an international currency, without much success.

The thought in itself is not new but the push though it's not clear whether it succeeds if only one-sided is stronger this time.

I am no expert in this but whatever I have seen of trade equations across industries, I suspect that terms and currency preferences cannot be demanded, unless in extreme situations like Russia where it is shut out by most of the world and thus unable to trade in the dollar.

But even Russia finds it uncomfortable with too many rupees in its pocket. A few months ago, Russian Deputy Prime Minister, Denis Valentinovich Manturov said that "because of a lack of imports from India, it's not enough to use the rupee".

Last month, Bloomberg reported that a lopsided trade relationship with India is forcing Russia to accumulate upto $1 billion every month in rupee assets that remain stranded outside the country.

So you are paying me good money for something I am selling you - being oil - but I can't really use the rupees you give me to do much, particularly since I don't buy much from you and I could only really and mostly use it to buy stuff from you, as things stand.

Meanwhile, ThePrint has just reported that India is making about 10% of its payments for Russian oil in the Chinese yuan, with the rest of the payments being made in Indian rupees and UAE dirhams.

So how does the internationalisation of the rupee play out then, what does it mean or not mean at this point in time?

To understand this better and also how we could gear up, if we could and where we could, I reached out to Jayesh Mehta, Managing Director & Treasurer of Bank of America Merrill Lynch.

Meanwhile, remember that you can pay in Rupees at Dubai Duty Free. Two things here, it is not new, it came into effect in 2019 and was the 16h currency to be accepted then and second, when we say internationalisation, we are referring to trade and not duty free shopping.

Swiss And Cheese

Speaking of trade and currency. The Swiss have an interesting problem.

Switzerland will apparently import more cheese than it exports this year for the first time, according to the head of the country's dairy association, news reports quoting Geneva-based newspaper Le Temps.
The opening up of the Swiss milk market has put a squeeze on domestic producers in recent years, prompting some to give up, Boris Beuret said in an interview published Saturday.

Beuret said measures need to be taken to ensure Switzerland - famous worldwide for high-quality cheese varieties such as Gruyère and Emmentaler - can continue to produce for its own population.

It is obvious that the cheese you think is Swiss wherever you eat it may not be actually made in Switzerland. But of course, it may never have been.

It is equally likely that depending on the brand, some brands are making their way out and others are making their way into Switzerland, but with a net deficit of course.

But the larger tale is interesting. Which is that Switzerland has been seeing a steady decline in dairy companies, particularly small ones, for some years now.

One reason as I could see is low prices for milk which disincentivize farmers whose incomes are falling.
There are other changes including consolidation of farms and cows.

Either way, it has not helped.

Another interesting trend, reflecting more how consumer tastes can shift, rather than what is happening in Switzerland specifically is that increasingly consumers are shifting to vegan alternatives. A report from industry magazine Vegconomist says at Coop, one of Switzerland's largest retail and wholesale companies offering over 50 plant-based drinks, one of seven litres of milk sold is vegan. Meanwhile, 63% of the Swiss population now gives up animal-based foods several times a month.

Tomatoes

From Swiss Cheese to Indian tomatoes.

High prices of tomatoes - around Rs 140 per kg - in many parts of the country - may have caused McDonald's to stop using tomatoes in its burgers and wraps in many outlets in the North and East.
Reports say Mcdonald's posted notices at some outlets in Delhi, saying, "For the time being, we are forced to serve you products without tomatoes."

The US burger-and-fries chain attributed "temporary unavailability of tomatoes" to "seasonal crop issues arising out of farm fields" in a few regions. "There are not enough quantities meeting our quality specifications available," a spokesperson of McDonald's India (North & East) is quoted as saying and also adding that the move had nothing to do with the surge in prices.

Rains Are Here

You may recall some nervousness all around in the middle of last month as we all wondered whether the rains and thus the monsoon 2023 would be delayed.

Turns out they were delayed but an abundance of rains in the first 8 days of July have already wiped out the deficit across the country.

In figures, India has already seen 243.2 mm while the normal value is 239.1mm at this time of the month and year.

Within this aggregate figure, as we have seen in previous years, there are variations.
East and northeast parts of the country are at a 17% deficit while northern India is reporting a 59% excess rainfall.

If you live in Delhi, Chandigarh or Ambala you have experienced the sheer horror of what non-stop rain can do to our homes and habitats.

Delhi saw 153 mm of rainfall in a 24-hour period ending at 8:30 am on Sunday, the highest in a single day since July 1982.

Central India too is at a surplus, though much lower.

That's it from me for this Monday morning, we are seeing more and more high-intensity rains, the kind which most infrastructure, particularly urban, is just not built for.
Do take care of yourself, wherever you are.