The Hindu Business Line : India may become 5th largest consumer market by 2025: McKinsey

Chennai, Oct 29 Take the current population figure of the US and add a 100 million to it. That’s about 400 million, or the number of Indian city dwellers who will belong to ‘middle class’ households, living at a comfortable standard with disposable incomes between Rs 2 lakh and Rs 10 lakh a year.

Will! When? By 2025, forecasts a recent McKinsey Global Institute (MGI) study, “The ‘Bird of Gold’: The rise of India’s consumer market”.

India is rapidly bulging in the ‘middle’. With the economic engine chugging at 7.3 per cent annual growth over the next about 20 years, our ‘middle class’ is expected to grow eight times: to nearly 600 million, or 40 per cent of the population, from the current 5 per cent.

The size of the market, measured by private spending, will leap to Rs 70 trillion (or Rs 70 lakh crore), quadrupling from Rs 17 trillion (RS 17 lakh crore) or about 60 per cent of India’s GDP in 2005. In the process, India would become the world’s fifth-largest consumer market from twelfth now, the report declares. “Higher private incomes and, to a lesser extent, population growth will encourage this rise in consumption. Changes in savings behaviour will play only a minor role.” By 2025, ‘India’s wealthiest citizens’, earning more than Rs 10 lakh a year, would have grown ten-fold relatively, to 2 per cent of the population, from 0.2 per cent today; they’d number 24 million, which is 4 million more than the latest headcount of Australia. These ‘global’ Indians, who would live in the eight largest cities, are likely to have ‘tastes similar to those of their counterparts in developed countries: brand name goods, vacations abroad, the latest consumer electronics, and high-end cars.’

Car purchases are anticipated to be the dominant transportation spend in household budgets. Ahead of this will be food, the single largest category of expenditure, declining, however, from 42 per cent to 25 per cent in the forecast period. While food outlays may rise at 4.5 per cent annually, healthcare spending will grow more than twice as fast, at 11 per cent a year, and account for more than a seventh of a family’s expenditure.

That may be worrying, but take heart at the projection for education; it will grow by 11 per cent over the next 20 years, to hog close to a tenth of household consumption, higher than today’s levels in any of the countries benchmarked by MGI. Reassuringly, rural households emerging from poverty will make educating their children a priority, while higher-income urbanites will be spending more on better-quality education, university degrees, and study-abroad programs, predicts the report. “Meanwhile, despite India’s fondness for cricket and ‘Bollywood’ movies, recreational products and services will take a smaller slice of household spending there than in other countries.”

Wish the ‘bird of gold’ in the story didn’t end up as the fabled golden-egg-laying goose.

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