The status economy

KIRAN KARNIK

WHERE do you live? This question, asked by a fellow guest at a Delhi party, can determine the flow of any further conversation. If the answer is East Delhi or Karol Bagh, it is an instant conversation-stopper, and the guest will immediately gravitate elsewhere. If your response is Golf Links or Chanakyapuri, you will soon be the centre of fawning attention. The areas mentioned in the latter response, for those unfamiliar with Delhi, are up-market areas. And if your response is ‘central Delhi’, it is indicative of being super-rich or a super-powerful high-level government functionary: in both cases, you will attract people who will stick to you like leeches.

Delhi is quite neatly divided into areas that define class boundaries, which induces people to ‘place’ others. In a culture which is class-conscious and always looking at how to exploit people and relationships, conversations and links are sought to be built with those who may be of use. This status consciousness seems to be now spreading across the country. No longer limited to social interaction, it is increasingly extending to the market.

An indication of this is the changing behaviour of people as customers or consumers. For long considered a value-for-money market (sasta, aur tikau bhi — cheap, and also lasting), the new buzzword among marketeers is ‘premiumization’. This recognizes the growing demand for more expensive products and brands. This is starkly visible in the automobile market: the demand for what were called entry-level cars — the least expensive — has decreased compared to more expensive ones. The share of sub-4m compact vehicles, which enjoy a lower tax rate, has shrunk six percentage points in three years to 72 percent, and the 4 to 4.5 m segment has seen its share stagnate at 16-17 percent. In contrast, the share of large-sized SUVs and MPVs (exceeding 4,500 mm in length) has doubled to 11 percent, up from 6 percent three years ago.

Similar trends are seen in other sectors, including packaged goods. There is also a change from generic items to branded products and, within the brands, to those which are more expensive and, therefore, enjoy a higher status. One fall-out is large-scale counterfeiting and selling of fakes. These, with their false labels, enable one to claim a higher status with lower expenditure.

At the same time, easy loans — spurred by intense competition amongst lending institutions — have further encouraged the trend to buy more expensive brands. A country where any loan was considered avoidable and to be taken only when direly needed, has now moved to the culture of 'buy now, pay later' even for wants (as opposed to needs). With instant credit available without collateral, loans are now used for purchase of otherwise unaffordable products and services. Holiday travel is one example: it has vastly increased (see ‘The Leisure Economy’, Civil Society, November 2023) with easy payment terms and EMIs. Going for a vacation is a status-enhancer, but to stay ahead of one’s neighbour, such travel must be to exotic and expensive locations in India or even abroad.

Clearly, we are moving to what one may call the ‘status economy’. Enticed by the need to be one up on peers and fuelled by easy availability of loans, it is likely to increasingly shape a consumption-driven economy. Amplifying the trend are higher incomes, even a degree of prosperity amongst millions, as borne out by income tax (IT) data. The number of IT returns filed has almost doubled to 74 million as compared to 2013-14, with the income slab of Rs 5-10 lakh seeing a huge jump (from 3.70 million to 11 million). More telling are the increases in higher brackets: from 1.2 million to 4.6 million in the Rs 10-20 lakh range, and from 0.4 million to 1.9 million in the Rs 20-50 lakh category.

The combination of higher income, easy availability of loans, and repayment through convenient EMIs is the final link in the chain which creates the status economy. Its origin lies in the rapid growth of the communication infrastructure which provides unparalleled connectivity, and the access to devices that enable this: TVs, laptops, and mobile phones. Riding on this is content — advertisements, programmes, videos, and clips of life elsewhere — which exposes people to new products and different lifestyles. Clever marketing then not only creates new wants but, often, also envy and competitiveness or one-upmanship. The resulting social change — from frugality and saving to ostentation and loans — synergizes with higher income, leading to the emergence of the status economy.

The absolute number of Indians who buy luxury brands is already big enough for the globally known brands to be here — in automobiles, fashion, restaurants, and much else. At the same time, the status economy continues to accelerate the trend to premiumization even amongst relatively cheaper brands, leading to growing up-selling. ‘Low cost’ and ‘cheap’ probably began to be recognized as brand-killers rather than sales drivers from the time of the then-much-acclaimed Tata Nano.

As one looks at these trends, it is worth noting some other figures. The rural employment guarantee scheme, MGNREGS, which provides subsistence wages to the unemployed, currently has 155 million active workers enrolled. According to a report, 214 million individuals opted for work under MGNREGS in this financial year. Assuming just two dependants for each of them, this means that over 650 million Indians are just above destitution. This tallies with the fact that as part of the right to food programme, 800 million will get free rations. Clearly, they have little or no disposable income and welcome low-cost or cheap products; for them, premiumization can be only a dream.  

Looking ahead, one can predict that while those buying luxury brands will remain a minuscule percentage, the trend towards premium brands will mean very large and rapidly growing absolute numbers of consumers. Already here today, the status economy will only become far bigger. 

Kiran Karnik is a public policy analyst and author. His most recent book is ‘Decisive Decade: India 2030, Gazelle or Hippo’