The India Story | Blume Indus Valley Report

What is India Paradox? (From Blume’s Indus Valley Report)

India has one of oldest social stratification systems: Caste System has been present since Ancient India, at the same time we are also witnessing the adoption of Blockchain (Polygon)which is a cutting edge technology to issue 60K caste certificates. This intertwining of such an old & new age psychology is only possible in India.

• India is the fastest growing economy in the world as our GDP sits at $3.5 Trillion.
• Service sectors (Think of companies like TCS, Accenture & Call Centers) contribute to more than 10% of GDP. Hence, the crown jewel is the IT & BPM Sector that contributes to 40% of exports. This directly employs 50 Lakh people & indirectly supports 120 Lakh people.

Macro Factors:

• India’s per capita income is 1.98 Lakh Rupees whilst China has a per capita income of close to $13000.
• India’s ~1.5 Billion people population has taken over China.
• India’s average age is 28 while China’s average age is 38. We have a 10yr of advantage.
• The world’s inflation is 8.8, ours is 6.8%. Hence we’re fairly better in a bad economic climate currently. (2023)
• Our equity market cap is $3.5Tn which is 5th Highest in the world.
• Almost everyone in India is an Entrepreneur: consisting various small-medium enterprises & also sole proprietorships. In USA there are 10 Lakh retail stores but in India there are about 120 Lakh retail stores.
• India has 65 Million SMBs of whom 75% are sole proprietors
• India’s formal organized workforce is just ~10% of Total Workforce (51 Million o total organized workforce of 535 Million). Means just 10% organized formal workforce is supporting everybody else along with entrepreneurs making up rest.

We have 850 Million internet users (More than half of India is sitting online) with 600 Million users being smartphone users. Only 350 Million out of them transact online just once a year!

• India has 185 Million people who are consistent online shoppers while just 45 Million are matured internet users making up to 50% of wallet spending online.
• Hence, from top of the funnel to down the funnel which is the matured users; there’s a large difference and it’s because of very cheap data plans as India’s mobile data is one of the lowest in the world just slightly above Israel but the amount of data we consume is one of the highest amounts in the world which leads massive user bases for companies.
• For example, WhatsApp having around 500 Million Users in country, YouTube having 470 Million users. These are massive numbers as out of 600 million smartphone users, 500 Million use WhatsApp!
• Except WhatsApp & YouTube if you combine all the other social apps in India, the total Advertising market cap is $4.5 Billion which is a tiny number. In Fact in foreign markets, Snapchat alone earned more than all these Indian companies put together.
• MAUs (Monthly Active Users) of Top Indian Companies → WhatsApp (500M), YT(470M), VerSe (405M), Meta (330M), HotStar (325M), ShareChat (318M), InstaGram (230M). India is a very social company with almost the top one’s being social apps in case of MAUs.

Not just advertisements, Anything that is consumer centric in India have smaller numbers. For instance:

There are only 37 Million unique mutual fund investors in India, 35–40 Million unique credit card holders,

13% of India’s K12 (1 to 12 class) students pay >Rs1000/Month fees,

Only 7.5% of Indian households have cars, god imagine the traffic once it increases. Car is a good proxy/baseline if you’re above lower middle class or below.

Behind all the metrics, there is an undersized consuming class as:

Less than 12% of India make less than 1 Lakh 30 Thousand a year.

50% of India make between 1 Lakh and 4 Lakhs a year.

If you make between 4 lakhs to 31 lakhs a year, you’re among the top 38% in the country.

If you make more than 31 lakhs a year then you’re at the top 5%.

There are 3–4 India's:

India 1 has 120 Million people producing $1.4 Trillion GDP

India 2 has 100 Million people producing 300 Billion dollars of GDP.

Difference between India 1 & India 2 is that India 1 transacts regularly while India 2 consists of occasional spenders.

India 3 has 1200 Million people generating $1.8 Trillion GDP which produces only a bit above India 1 whilst having 10 times more people.

Unfortunately, India 3 is a non monetizable user bases, they will use apps & online browsing but the minute they’re asked to pay, they will back down as they don’t have enough.

• Most apps are targeting India 1: Netflix, Cred, Dunzo etc. realized that's the same amount of GDP produced by lesser people and hence Cost of Acquisition is lower for India 1 than spending on non-transacting users of India 2,3.
• Outside of India 1,2,3, there is an India Diaspora (India 4) which are Indians living abroad sending insane amounts of money. India Diaspora (think of them like your relatives, brother, chacha sending money back from outside) transferred 100 Billion dollars in 2022 to the country which is more than FDI (From all top foreign investors combined) in this country.
• Lots of new startups are coming up in India 2,3 are building for India 1. Backed by local angel investors. Shows like Shark Tank provided a glimpse to mainstream entrepreneurship.

Base of direct and indirect taxpayers has increased. GST has been a hit in increasing the taxpayer base.

In mid 2017: 6 Million companies paid taxes in India, today (2023) it’s more than 14 million companies.

Income tax payers went from 40 Million taxpayers (FY15) to 63 million FY21 → 6 years!

Rising formalization in India, everyone is getting together forming companies and this is supported by the digital infra of the company that are fueled by improved digital infra like:

• On the identity side we have Aadhar, E-KYC, Digital Signature, Online repositories like DigiLocker.
• Payments are flourishing over the backbone of UPI
• In terms of data sharing, entities like account aggregators have been on rise.
• In China, everything is a centralized entity owned by the government. If you don’t like one product, you’re doomed to use it anyways as there won’t be another player. But In India, we have different offerings for various use cases take for example payments with players like PhonePe, Paytm etc.
• UPI Payments reached $1.5Tn, UPI payments to merchants is bigger than credit & debit cards.
• Also, India is launching ONDC which allows any vendor to have the infra like Amazon & Flipkart without getting pushed by their competition.

India is fast emerging as a stealth manufacturing power, because of 4 reasons:

1. Friendsharing: India & US are political allies whilst USA/India are against China. Companies in USA eg. Apple is utilizing the China +1 concept wherein they don’t want to be too dependent on China and hence, are setting up manufacturing in India. As a result, in the case of Apple, 6% of iPhones are produced in India. Numbers are going to slowly shift towards India with such “friendsharing” partners setting up manufacturing in India.
2. Govt. Incentives: Govt. is spurring growth with the help of PLI (Production Linked Policy) originally introduced by the IT ministry and IT has boomed. Since then incentives of 4–6% of production costs were given and has spread to various sectors. $25 Bn investments have been made. Policy is aiming to create 60 Lakh jobs & ~ $350Bn worth production over 5 yrs.
3. Low Labor Costs: Lowest in the world as it costs $160/month to get a laborer in India as compared to ~$5000/month in Singapore. It means the cost of living is so low, rental cost in New York → 50–60L / Year.
4. Capital Expenditures in India (Expenditures made on projects in various sectors) seem to bring good returns. Proving that Manufacturing is a good long term business in India

Improving public infra & digital infra: things like UPI make India a unique destination for “Frictionless” purchasing as compared to Dubai where it’s hard. This Increased peer-to-peer transactions. Similarly the more investments in manufacturing, the better are the roads/highways network of a country. It’s a great proxy to identify how a country is spending its money based on highway length. India now has 151,000 Kms of highway length. GST & Digital Welfare makes sure money is pouring in to improve the public infra.

Government support in form of Schemes that allow people to take & payback loans easily are allowing the country to become a more risk taking nation as previously our country was risk averse unlike China & USA.

New industrial policy has been proposed recently after 1991, aiming to boost access to finance for rapid industrial growth.

Consumers now have more liquid cash for more expenditure, spends on staples (Food & survival necessities spending) are there but Discretionary spends (Expenditures on say PS5 or Jewelry) is increasing consistently. It’s a sign either the staples are getting cheaper to buy (Which isn’t the case) or people are earning more money. Average Indian’s spending on food has gradually decreased in the last 10 years while the food prices itself has increased.

• Access of water supply: (Around 50% Indians have tap water connections)
• Access of electricity: 99% have in India (Successfully electrified India)

All Cool but What’s the catch? Why isn’t more cash pouring in India & growth isn’t as fast?

It’s because of the target addressable market, or the market the companies can reach/sell products to is not as large as once estimated to be.

Outside the top 30Mn households in the country (Those who spend a lot), There’s a steep drop in propensity to shell out money to buy things beyond the top 30 Million households.

We have a brutal power law

Even though we’re so many people, only a few of them do all the spending. Very Rich/ Rich people own multiple businesses wherein they hire many people and make a lot of purchases and therefore the overall spending in India is skewed towards such people. Hence, their contribution to GDP & Spends are thousands or million times more than the average consumer which means there’s a power law.

Tapering of frequent user base’s growth: companies/people calculate if apps are having a certain amount of users today then in sometime they’ll have 10 times more users but it isn’t the case with regard to the total addressable market being so skewed.

1%, that is just 15 Million or Indians pay any tax at all and the reason is we have a very high exemption rate (Many people not obliged to pay taxes). Hence, government Is focusing on power law and getting tax from the top rather than poorer people who are anyway gonna hide their numbers and would be a waste of resources to pursue them on a large scale which will have it’s own effects.

Income growth amongst the elite is the fastest.

Story sold about India is a narrative violation: The Indian market for B2C tech businesses in terms of users who can generate revenue is 15 Crores at max! ~ Nitin Kamath’s research

India has 140Cr people and only 9Cr Demat accounts (6% of population) but they aren’t all unique. The unique count is around 6 Crores. Out of which active Demat accounts with holdings of more than Rs10,000 areless than 3 crore! There’s only around 3.5 Crore unique mutual fund investors in India.

Netflix has the lowest subscription rate in India which is less than Rs160/user and still has just 6 Million subscribers which is very small compared to the amount they have spent in India.

Household goods ownership stats mirror online paying user stats. Only 16% of households in India own all three: TV, AC & Washing Machine.

How strong are India’s alpha power laws?

• In Zomato 5% users are responsible for ~33% orders placed. People usually compare prices between Zomato & Swiggy a lot as beyond India 1 people are highly price conscious.
• On UPI (Including GPay, PayTm, PhonePe) 6.5% users are responsible for 44% of transactions.
• 1% of Indians account for nearly half the flights taken in India.
• Also, 1% of the Indians take 22% of India’s income.

All revenue potential in Ecommerce is starting to hit a plateau. Potentially, more growth is going to come from rural households which is India 2 & India 3 (Mostly them buying smaller ticket items, products costing Rs100–150 instead of average rs500)

The 3 steroid shots (UPI, JIO, COVID) that boosted India’s growth are steadily waning. Effect is wearing off, and such new steroids that added more transactors into the business ecosystem are unlikely to get in the future. No. of transacting users in companies like Zomato are saturating, in fact top 4 IT companies are laying off people after so many years.

Staple industry believes rural has bottomed out but there is no conclusive evidence of pickup yet. ~ Jeffery’s Report

But, the business ecosystem of India is improving with every generation, we now have the learning platforms (Twitter, YT) helping the nation will grow & learn.

Venture capital has been a great driver for wealth in companies, investors get a certain stake in a company and are willing to give founders & employees (Including Ex) who hold stocks a little bit of money at a discount to get shares at cheaper price. VC Investment trend is slowing down as funding is going to dry out, even IPOs are slowing down. It’s the best time to work at a startup, getting ESOPs (yrs later they are going to vest.

Future of India is going to be a gig economy driven one (Remote work, Gigs, Content Creation etc). Gig economy jobs in India have gone from 1.4 Million people to 4 Million people. People are doing multiple things/gigs to make more money. Eg. Morning Software job and at Night Rapido driver.

Best companies take advantage of some inflection points like UPI gave boost to PayTm.

• 2022 was the best year for EVs as they exceeded 1Mn sales.
• 10% of sales (380 Crore) of Nykaa came from Ad sales in FY22. Most people are sitting on E-com platforms & scrolling, getting an ad for lipstick is more relevant & likely to convert rather than getting the ad on some other platform. Hence, E-com have become huge ad targets.
• 10% of content consumed in India is short form content which is contributing to 1% of ad spends and it’s only going to increase.
• India is a Daily/Monthly Active User farm for the world. A DAU Factory of global social media companies earning them valuation without meaningful contribution to ARPU (Avg. Revenue per User). Hence, it’s very easy to get those users but very hard to make them a paying customer. One of the ways to make users pay is through Gaming, when VCs talk about Gaming they mean Gambling, Fantasy Sports that generate a lot of money whose 99% revenue comes from Rummy & Poker.
• Older generations of Indian companies are going online as well like Hindustan Unilever, Mahindra, ITC etc. increasing their digital sales presence. Older enterprises are coming on YT & Social Media as Attention is the new oil and especially relevant attention in the digital economy. It’s a powerful acquisition channel.
• Companies like Nykaa have a big distribution network with all this data about what consumers want, they have started their own private labels to capitalize on it. Just like Amazon Basics making copy brands. ONDC is building a platform to defeat this manipulation with democratic access to all retailers.
• India 2 & 3 have also shot up search by Voice, in fact 5x is a YoY growth in voice search and that too mostly in regional language. 45% of these voice searches are in fashion, 25% in Electronics. 1 in 2 voice search users are 1st time shoppers.
• PayTm launched a sound box as merchants didn’t trust that they have received the payments and this is generating close to 1 Million sales each month accounting to 8% of their overall revenue (Rs 50 Cr). India 1, 2,3 have people that mostly trust what they can touch and feel showcasing they won’t pay for the best of software but buy sandboxes. Betting on companies solving trust issues are something to look for.
• IPL Sponsorships are being done to build trust. Startups are trying to win trust to build more products in future.

TY!