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India's 20-somethings 'spend like mad'

Young Indians are increasingly eager to put the latest iPods, brand-name sunglasses and cellphones on their credit cards, take out a loan to get an apartment or car, and worry about it all later.
Image: India's Emerging Middle Class
A young Indian shops for shoes in Bangalore. Demand for Western goods is booming in India, a situation fueled by access to credit.Uriel Sinai / Getty Images file
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

Draped in a wedding sari and adorned with yellow gold necklaces and jangling red marriage bangles, a new bride sat demurely on a bed covered with flowers. In the dimly lit room, she handed a glass of milk to her groom in a flirty wedding-night ritual.

But in this popular and comical TV commercial, another hand suddenly emerged from the floor and grabbed the tumbler of milk, which was then passed to another hand, then another and another. They were all the hands of relatives sleeping in the same room, in accordance with India's traditional extended family system. When the milk, meant to seduce, finally reached the groom at the other end of the bedroom, he drank it and blew a kiss to his bride.

Then came the rub: "Cramped for space?" a voiceover boomed. The ad went on to tout easy credit lines for young couples seeking home loans.

The TV spot is just one example of how India's thriving advertising industry is targeting one of the world's youngest populations and largest markets. More than 70 percent of India's population of 1.15 billion is under 35. With the proliferation of outsourced technology and call-center jobs, a growing number are finding themselves with good salaries, few expenses and large disposable incomes.

'Consumer confidence'
These middle- and upper-class consumers, known here as "indies," or financially independent young Indians, are also delaying having children until they are in their mid- to late 20s. Studies show that they are eager to put the latest iPods, brand-name sunglasses and cellphones on their credit cards, take out a loan to get an apartment or car, and worry about it all later.

"The India story today is about the consumer confidence among our young people who are willing to spend like mad," said Kamal Basu, chief executive of the Mumbai branch of the advertising agency Saatchi & Saatchi.

The spending habits of the country's young have even given rise to a new term: "Youngistan," a twist on Hindustan, a time-honored moniker for India. Pepsi created the term as part of an ad campaign, and it's now frequently invoked by ad executives and Indian bloggers trying to describe a generation whose habits in love, life and spending are anything but traditional.

"In many ways, India is the most exciting market in the world because it's so young and the growth has been so fast," Basu said. "We don't want that to change."

11 per cent inflation
Change may very well be coming. Although India's annual economic growth rate has averaged about 9 percent in recent years, the economy is cooling during the global slowdown. This summer, inflation in India ballooned to 11 percent, the highest annual rate in 13 years. Prices for rice, milk and cooking oil, in particular, have skyrocketed, and increases in gasoline prices have sparked protests.

Financial experts in Mumbai, India's business capital, predict that the country's economic growth will slow to about 7 percent. The drop of a couple of percentage points, however, could mean the loss of thousands of jobs.

Still, the Indian economy remains one of the largest in Asia, and many financial experts are optimistic.

India's outpost of Standard Chartered Bank estimates that the subcontinent adds 3 million young earners in the 20- to 24-year-old age group annually, a figure expected to more than double in the next few years. In booming cities such as Mumbai and Bangalore, Citibank released a credit card with the MTV logo that can be used for discounts at CD stores and at clubs.

Vulnerable to advertising
If there is a severe economic slowdown, some Indian economists worry that young people may be most affected. Many 20- and 30-somethings have amassed debt during the boom years. Their generation is also particularly vulnerable to advertising for costly "aspiration products," such as flat-screen TVs, washing machines and air conditioners. In India, even the lowest credit card interest rates hover around 20 percent, and the average lending rate is 34 percent, which includes a 12 percent service tax on the interest.

"It's like there is a constant sword dangling on your head," said Sunil Sethi, chief executive of Alliance Merchandise, a buying agent for international clothing and fabric.

Indians have traditionally put an emphasis on savings, but the old rules no longer stick there, either, said Vishesh Chandiok, a partner with Grant Thornton, a financial firm. Savings can be wiped out quickly.

"Now you can spend $10,000 on a car," Chandiok said. "It can be fairly dangerous for people who don't know the ways of credit card expenditures and charge more than what is in line with their income — especially in India, when credit card companies are calling you five times a day."

'Totally broke but happy'
Pratik Dogra, a 21-year-old sportswriter in New Delhi, is among those who might be in trouble. Dogra loves to eat at hip restaurants, buy imported clothing and watch cricket matches at pubs with his friends. He said he almost always puts the drinks, sports gear and meals on his credit card.

He typically racks up about $250 in charges a month, slightly more than he earns. He said he was "totally broke but happy." He is living with his parents, so for now, anyway, he can keep on enjoying life in Youngistan.

"I haven't told my parents yet that I'm an active — very active — credit card user," said Dogra, looking slightly guilty. "Because I know the lectures I'll get on saving. Besides, I can't tell them. They might take it away from me."

Special correspondent Ayesha Manocha in New Delhi contributed to this report.