India: 5th Largest Consumer By 2025

(via Times News Network) Irshad Daftari writes:

The elephant has begun dancing and is now set to take wings. India’s much-touted middle-class will soon embark on a consuming spree that is set to make the country the fifth-largest consuming economy behind US, Japan, China and the UK by 2025.

According to a report by McKinsey Global Institute (MGI) titled The Bird of Gold: The Rise of India’s Consumer Market, India is set for a consumption boom, with aggregate consumption (private and government consumption) increasing more than four times to Rs 70,00,000 crore (approximately $1.5 trillion) from Rs 15,00,000 crore currently.

Further, the report states, if purchasing power parity (PPP) was used as a benchmark India’s aggregate consumption will stand at $8.2 trillion, making it larger than the current US consumption at $7.8 trillion. A significant aspect of a broadly middle-class economy is that it fundamentally changes the political dynamics.

“The political power structure will change as it has happened all over the world when economies have become middle-class,” says Adil Zainulbhai, MD, McKinsey, India. For a 20-year forecast, MGI has assumed that land reforms and urban and rural infrastructure investments will continue, or at least not be rolled back.

Says Mr Zainulbhai, “Our studies show that it takes nearly 15 years for reforms to fundamentally change the economy. China, for instance, took off in the mid-90s after beginning reforms in the late 70s. Some of the heavy lifting in terms of reforms has already been done and it won’t require sweeping changes at this speed.”

Further, the middle-class, which has broadly been defined as households earning between Rs. 2 lakh to Rs 10 lakh per annum, will grow to 583 million from just 50 million today. To put that figure into perspective, the middle-class would form the third-largest country by itself in terms of population, and nearly twice the current population of the United States. The average household income will rise from Rs 113,744 in 2005 to Rs 318,896 in 2025, growing 5.3% annually.

While that might seem a pittance in dollar terms at just under $7600, it works out to nearly $40,000 in terms of purchasing power parity, comfortable by most standards. Nearly 291 million people will move out of the lowest consuming class, earning less than Rs 90,000 per annum, to a middle class lifestyle.

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http://economictimes.indiatimes.com/India_5th_largest_consumer_by_2025/articleshow/1999742.cms