Rise in the stock markets in the past two decades, integration of economy through infrastructure and digital payments systems, and foreign companies creating high-income jobs have led to a booming "octopus class" in India which is fuelling consumption growth. In general, levels of affluence and disposable income in 10 big cities of India are close to the first-world levels, said Saurabh Mukherjea, Founder & CIO, Marcellus Investment Managers, while talking to ET Now.
"What is astonishing is the fact that in spite of the (Cricket World Cup) ticket prices, every ticket that I have heard of is gone. Not only are tickets gone, hotels are jammed, plane tickets are booked out, and this goes to show how wealthy a certain section of Indian society has become," Mukherjea said.
Saurabh Mukherjea, along with his colleague Nandita Rajhansa, has coined the term the "octopus class" to analyse the rise of this affluent class in India.
The "octopus class", according to Mukherjea and Rajhansa, comprises nearly two lakh families across India, in small towns as well as big cities, or nearly 1 million people, who control nearly 80% of India’s wealth.
There are two very different wealth-creation models in play in India; the first is a small-town model and the second is a big city model, Mukherjea and Rajhansa write in an article titled 'The Octopus Ascends: The Rise of Crazy Rich Indians'. Below is how they describe the formation of the "octopus class":
Grain traders in small towns, who had been doing their business conventionally and informally for a long time, formalized their business with demonetization and GST, and now have access to the formal banking channels. A big and smart grain trader takes a loan from a bank to open a cold storage to increase the shelf life of his products and sell them at a later date when prices are higher. He uses this surplus money generated to secure a two-wheeler dealership. As that dealership flourishes, he u ..
By this time, he has generated considerable clout within the town (financially as well as socially). Leveraging this clout, he gets his son into the local municipal corporation (or zila parishad). Over the next few years, his son rises in the local political hierarchy. Father and son then combine to get contracts for local road construction/repair. Profits from these local construction contracts further enhance the family’s surplus which they can then use to become local real estate developers. ..
The big city octopus class operates in a different way. They are likely to have higher technical qualifications which they deploy to get well-paid jobs in India Inc. As India’s leading companies continue gunning out substantial profit growth every year, the number of highly paid executives who manage these companies continues to burgeon.
To hold on to their best talent, these companies will pay their executives well, and give them equity-based compensation which will then compound with the share price of the company, thus implying at the market-wide level around 4x growth in wealth every decade. Furthermore, the most ambitious of them are likely to quit to create a start-up where a combination of their equity ownership alongside venture capital or private equity funding will make them dollar millionaires in the span of a few yea ..
The big city octopus class is a combination of listed company owners (there are around 6,000 such families in India), VC- and PE-backed companies’ owners (which number approximately 680 – assuming an average of three rounds are conducted per company), and the senior talent working in these companies.
Mukherjea and Rajhansa write that their travels across India over the past decade have shown that:
A town with less than 0.5 million people will have 20 such families who will account for 80% of the wealth in that town. A city with 1 million people will have 50 such families who will account for 80% of the wealth in that city.
A tier 2 city like Pune or Lucknow will have 100-300 such families who will account for 80% of the wealth in that city, while major metros like Mumbai and Delhi will have a few thousand such families who will account for 80% of the wealth in that city.
Thus, at the national level, around 200K such families (or between 700K – 1 million individuals) form the "octopus class" controlling 80% of the country's wealth.
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Source Name : Economic Times