India’s strength is consumers, says Goldman Sachs

India’s consumer story is likely to be one of the world’s “most compelling” over the next 20 years, but the challenge before the country is to create jobs to “unleash productivity” of its youth, says a report.

Thanks to 440 million millennials and 390 million Gen Z (teens and children), “the sheer size of India’s youth combined with improved education pave the way for sustained growth in purchasing power and makes India’s consumer story one of the worlds most compelling for the next 20 years,” Goldman Sachs said in a research note on Wednesday.

“However, creating enough jobs for the rising number of young people is one of India’s biggest challenges and opportunities. It is the most fundamental underpinning of India’s consumption story,” it added.

According to the report, the ‘Educated Urban Mass’ and ‘Urban Blue Collar’ segments are expected to grow fastest over the next five years largely owing to a slew of service sector jobs in retail, food and logistics.

Goldman Sachs expects fastest job addition in the Educated Urban Mass (10 million new jobs by 2020) and the Urban Blue Collar segments (27 million new jobs), with fastest income growth also likely in the same categories due to a shortage of trained labor.

As per the report, two sectors that are likely to “leapfrog” the most are Mobile connectivity and ecommerce. “Improved mobile connectivity will also challenge the domination of TV as a primary source of household entertainment over time, creating a bigger profit pool for content providers and mobile gaming,” it said.

However, growth of luxury and high-end products will be limited as culturally India’s affluent consumers tend to shy away from ostentatious display of wealth.

The number of weddings and household formations will increase over the next 5 years, given India’s demographics (peak birth reached 22-23 yrs ago), the report said.

Best categories positioned for profit pool expansion are: packaged snacks, baby products, premium personal care, scooters, SUVs and jewelry.