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Indian market to outdo Italy, Germany

By 2025, India will grow into the fifth-largest consumer market in the world, reports Suman Layak.

business Updated: May 04, 2007 12:17 IST

By 2025, India will grow into the fifth-largest consumer market in the world, ahead of the likes of Germany and Italy. The affluent middle-class population will outnumber those living below the poverty line and fuel the boom, predicts a new study.

In the next two decades, Indian household income will triple and 29 crore people (twice the present population of Bangladesh) will have risen above the poverty line, says ‘Bird of Gold – The Rise of India’s Consumer Market’, a new study by McKinsey and Company.

McKinsey partner Subbu Narayanswamy told HT: “We assumed a 7.3 per cent growth and no dramatic reform measures, just the continuation of the current momentum. This will change the shape of the Indian consumer pyramid.” The study also says that the list of very rich people will be as long as 2.3 crore.

Predicting a population of 142 crore, the study says 22 per cent would still be “deprived” but that’s still better than the 2005 level of 54 per cent. The 58-crore-strong middle-class would comprise 41 per cent of the population.

Between the deprived and the middle-class, there is a class defined as ‘Aspirers’. Their numbers were at 18 per cent of the total population in 1995 and rose to 41 per cent in 2005. The numbers in this class will move up to 43 per cent by 2015 and then fall to 36 per cent in 2025 as more aspirers join the more affluent middle-class.

Annual incomes have been taken at the year 2000 level to determine various classes. The ‘deprived’ are people whose annual household income would have been Rs 90,000 or less. The aspirers have household income of between Rs 90,000 and Rs 2 lakh a year, the middle-class make between Rs 2 lakh and Rs 10 lakh a year. The wealthy are those with annual household incomes of over Rs 10 lakh. All salary levels are at year 2000 level and need to be adjusted for inflation.

The study also notes that the largest portion will still be spent on food, beverages and tobacco products, the share of communication and healthcare will go up fast.

McKinsey forecasts consumption will grow in real terms from Rs 17 trillion today to Rs 34 trillion by 2015 and Rs 70 trillion by 2025. It adds: “On a per capita basis, real spending will remain modest at Rs 48,632 in 2025 — although this will still represent a tripling from today’s level.” The study indicates that the rural area will not be left behind either and by 2017 the average rural spending will be similar to the average urban spending of today.

DH Pai Panandikar, economist and head of the RPG Foundation think tank, said: “With more reforms, especially labour reforms, we can take growth even higher. My estimate is that poverty level should come down to 10 per cent of the population by 2025. But the definition of poverty also changes; as you progress, the poverty line must keep moving up.” Added Bigyan Verma, adjunct professor at the Sprott School of Business, Carleton University, Ottawa: “The only danger is too much optimism and overheating. When the economy overheats, creating inflation and unemployment pressures. There is a danger of large chunks of the country being left out of the growth. And even a small drop in growth will pinch hard.”