[Reader-list] Globalisation in One Country , part II: How India’s Super-Rich Spend Their Money

[Patrice Riemens]

The Wall Street Journal again (oeuf corse):
http://on.wsj.com/kR5fGz

How India’s Super-Rich Spend Their Money
by Shefali Anand

What do India’s super-rich like to buy with their buckets of money?

Customized holiday packages, luxury watches, diamonds and jewelry, and
home electronics (including fancy mobiles and high-end cameras) — in that
order.

They buy luxury cars, too, but not Ferraris and Lamborghinis as one would
expect. More like Honda and Toyota, says a new study on the spending and
investment patterns of India’s super-wealthy.

The wealthy here are defined as households with a minimum average net
worth of 250 million rupees ($5.6 million) for the financial year ended
March 31, 2011. The study was conducted by Kotak Wealth Management and
rating and research firm Crisil Ltd, and was released in Mumbai on Tuesday
afternoon.

Researchers interviewed 150 super-wealthy individuals in India’s major
cities of Mumbai, Delhi and Bangalore, and others like Hyderabad,
Ahmedabad and Chennai. Senior personnel at major global luxury brands, art
gallery owners, product dealers and industry body representatives were
also interviewed.

The study estimates that India has about 62,000 super-rich households,
with a total wealth of around 45 trillion rupees ($1 trillion.) This is
expected to grow to 235 trillion rupees ($5.3 trillion) in five years.

“The fivefold increase in net worth and increasing propensity to spend
could together have an explosive impact on (India’s) luxury goods market,”
said Roopa Kudva, managing director and chief executive officer of Crisil
in a press release.

The study found that a significant portion of ultra-rich people’s
expenditures goes to exclusive holiday packages, often for holidays
abroad. However, this expenditure is typically planned in advance and the
family plays a large role in deciding the holiday location and other
details, the study said.

The rich also spend heavily on jewelry and precious stones including
three-carat solitaires. The luxury jewelry market is estimated to be worth
229 billion rupees ($5.1 billion), according to the report.

Luxury cars, defined as those whose on-road price is 2.3 million rupees
($51,000) or above, are another favorite expenditure. The popular brands,
besides Honda and Toyota, include Mercedes and BMW.

“For regular use in cities, Japanese cars are preferred because they are
trusted for Indian roads,” said the Kotak/Crisil report. The wealthy
typically own two to four cars.

Many wealthy look to sports utility vehicles as “aspirational cars.”

Another major area of spending is electronics, such as home entertainment
systems with television screens of 55 inches or more, custom-built
entertainment rooms or theaters.

More rich also are going for home automation, where appliances and gadgets
at home can be operated through remote control, said the report.

“Art” and “luxury writing instruments” get the smallest portion of
spending from the super-rich, but these are usually the most impulsive
buys.

Interestingly, many of the rich fear buying goods, or even booking flights
and holidays online because of potential credit card fraud. So, many of
them tend to use their corporate credit cards rather than their personal
cards.

The study found that a vast chunk of the wealthy are entrepreneurs, but
professionals in the fast-growing industries of technology and financial
services have also been able to jump into the super-wealthy bracket.

The study divided the respondents based on the source of their wealth,
calling them “inheritors,” “self-made” (first-generation entrepreneurs,)
and “professionals” (salaried individuals).

Researchers found that the spending and investing patterns were slightly
different for each of these categories.

Of the three, professionals spend the largest proportion of their money –
nearly 29% — perhaps partly because they don’t feel the need to leave a
large inheritance, said the study.

The inheritors and self-made rich spend 21.5% and 20% of their income
respectively, putting a larger portion of their money into their
businesses. All three categories have cash savings of at least a fifth of
their total income and invest another one-fifth to multiply their personal
wealth, according to the study.

Professionals are most concerned about social inequality, and take time to
give back to society. Meanwhile, the inheritors prefer to do their
shopping for clothes and luxury items abroad.

“The same international brands in India don’t have the same range, so I
pick them up when I travel overseas,” said one “inheritor” respondent of
the study. “Also, apparel, especially international, better to buy them
abroad. The range, the cut, the finish, is better there, even the price.”

Meanwhile, the self-made buy within India and they also travel the least
abroad (relative to the other rich), “probably because they spend more
time on business,” said the report.

New areas of potential spending include destination weddings, such as one
on a ship to Australia, or theme weddings like underwater wedding
ceremonies.

“Owning aircraft and yachts has also become popular, although teething
infrastructural problems such as ports for berthing, and bureaucratic
hassles are discouraging factors,” said the report.

Earlier this year, a study from Citi Private Bank and Knight Frank said
that Indians lead the world’s millionaires in wanting to spend on yachts
and private jets.

The Kotak/Crisil report noted that one of India’s billionaires owns four
yachts. “Another is believed to have purchased some islands in
Lakshwadeep, and a luxury mansion on a secluded island off the coast of
Cannes,” said the report.

Some study respondents said they had even spent a considerable sum of
money on storing their stem cells.